2010-2020: Pakistan's Lost Decade

Until 2010, Bangladesh was a laggard in South Asia region. Its per capita income was about half of Pakistan's. Now Bangladesh has surpassed Pakistan as the Pakistani economy has suffered significant slow-down from the previous decade. In fact, the Pakistan economy grew at the slowest rate in South Asia as reflected in per capita incomes. However, the income inequality in Pakistan continues to be the lowest in South Asia. 

Per Capita Income Growth in Pakistan Lags in South Asia. Source: World Bank

Lower income inequality in Pakistan is reflected in its abysmal domestic savings and investment rate of around 10% of GDP. It shows in Pakistan's lower economic growth rate compared to Bangladesh and India. The distribution of national income in a country is a key socioeconomic variable with broad economic and societal implications. Income inequality and wealth inequality are related because the flow of income determines savings and investments, which in turn determine GDP growth and accumulation of wealth. An economic model offered by Galor and Zeira predicts that the effect of rising inequality on GDP per capita is negative in relatively rich countries but positive in poor countries like Pakistan.

Source: The Economist

Investment as Percentage of GDP Source: State Bank of Pakistan 

US Aid to Pakistan 2001-2020

While Pakistan's per capita income more than doubled from $500 to $1,000 in the ten years 2000 to 2010, the growth has slowed to less than 30% from 2010 to 2020. Faster GDP growth in the decade of 2000-2010 was partly the result of significant increase in Pakistan's savings and investment rates.  Meanwhile, rising worker remittances from overseas Pakistanis have been boosting Pakistan national savings rate and helping reduce current account deficits

Savings Rate in Pakistan. Source: Dawn

Pakistan also saw rapid economic growth in the 1960s in spite of low domestic savings rate. This can be explained by foreign development aid of as much as 10% of GDP that Pakistan received in that decade.

Foreign Aid to Pakistan as Percent of GDP Source: World Bank

Pakistan's exports doubled from $10 billion to $20 billion in years 2000-2010. In the last decade 2010-2020, the nation's exports have grown only about 25% to $25 billion. Exports have declined in terms of percentage of the country's GDP from 13% to 10% in the most recent decade. . 

Pakistan Exports Since Year 2000. Source: World Bank

Return on money invested in Pakistani stock market has also been cut in half in 2010-2020 when compared with the return in 2000-2010.  Shares of companies making up the Karachi Stock Exchange 100 index have returned 8% in US$ terms in 2010-2020, less than half of the 20% during 2000-2010 period. KSE100 still managed to achieve 14% return over the 20-year period from 2001 to 2021, among the highest in the world. 

Stock Market Returns. Source: Tundra 

Foreign direct investment (FDI) in Pakistan ramped up in 2000-2010, reaching the peak of $5.6 billion (3.67% of GDP) in 2007. FDI inflow has since suffered a steep decline.

Foreign Direct Investment in Pakistan. Source: World Bank

Pakistan FDI inflows have significantly lagged behind those of the rest of South Asia.

FDI Inflows in Pakistan. Source: World Bank

Pakistan's manufacturing output tripled from $7 billion in 2000 to $21 billion in 2010. Then it rose just 60% to $34 billion in 2019. The nation's industrial output declined as percentage of GDP from 14% to 12% in the last decade, according to the data from UNIDO, the United Nations Industrial Development Organization. 

Pakistan's Manufacturing Output Trend Since 2000. Source: World Bank

Pakistan's literacy rate has been flat at about 59% in the last decade (2010-2019) after substantial rise from 45% to 55% in the decade of 2000-2010. 

Pakistan Literacy Rate. Source: World Bank

The net primary enrollment rate in Pakistan jumped from 55% in 2000 to 65% in 2010. The progress on this metric slowed as it increased just two percentage points to 67% in 2019. 

Net Primary Enrollment Rate in Pakistan. Source: World Bank

Pakistan has seen a major decline in the rate of human development growth in the country over the last decade. Pakistan saw HDI (Human Development Index) average annual growth of 1.4% in 2000-2009 and 0.80% in 2010-2019, according to Human Development Indices and Indicators 2018 Statistical Update.  The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President Musharraf's rule, according to the latest Human Development Report 2018.

Pakistan Human Development Index Growth Rate. Source: Human Development Report 2020

Bangladesh surpassing Pakistan in socioeconomic indicators has brought into sharp focus the contrast between Pakistan's decades of 2000-2010 and 2010-2020.What changed? The biggest change is Bangladeshi leader Shaikh Hasina's decision to stifle the unruly Opposition and the media to bring political and economic stability to the South Asian nation of 160 million people. It has eliminated a constant sense of crisis and assured investors and businesses of continuity of government policies. With development taking precedence over democracy, Shaikh Hasina followed the example of Asian Tigers  by focusing on export-led economic growth of her country. She incentivized the export-oriented garment industry and invested in human development. Bangladesh now outperforms India and Pakistan in a whole range of socioeconomic indicators: exports, economic growth, infant mortality rate, primary school enrollment, fertility rate and life expectancy.       

South Asian Countries' Export Growth. Source: Wall Street Journal

Bangladesh's garment exports have helped its economy outshine India's and Pakistan's in the last decade. Impressed by Bangladesh's progress, the United Nations’ Committee for Development Policy has recommended that the country be upgraded from least developed category that it has held the last 50 years. 

The next challenge for Bangladesh is to move toward higher-value add manufacturing and exports, as Vietnam has done. Its export industry is still overwhelmingly focused on garment manufacturing. The country’s economic complexity, ranked by Harvard University’s Growth Lab, is 108 out of the 133 countries measured. That is actually lower than it was in 1995, according to the Wall Street Journal

Pakistan Growth By Decades. Source: National Trade and Transport Facility

Vietnam ruled by autocrats is rapidly becoming an Asian Tiger. With rising manufacturing costs in China and the US-China trade war,  many major manufacturers are relocating to other countries in Asia. This situation has helped Vietnam emerge as a hub of foreign direct investment (FDI). FDI flow into the country has averaged more than 6% of GDP, the highest of any emerging economy. The country’s recent economic data shows a rise of 18% in exports, with a 26% jump in computers/components exports and a 63% jump in machinery/accessories exports.  These figures have earned Vietnam the moniker of the newest "Asian Tiger".

Musharraf Years & History of Pakistan's GDP Growth Rates. Source: PBS 

It was in 2007 that Pakistan caught the "democracy" fever led by the lawless lawyers of Lahore. This led to the return of corrupt dynastic rule of Asif Zardari and then Nawaz Sharif. The year 2007 also marked the beginning of yet another lost decade that saw Pakistan's per capita gdp's continuing lag behind South Asia region and other emerging economies. 

Pakistan was the original "Asian Tiger" back in the 1960s when  other developing Asian economies sought to emulate its development model. It became an export powerhouse in the 1960s when the country's manufactured exports exceeded those of Thailand, Malaysia and Indonesia combined.  The creation of major industrial estates in Karachi under President Ayub Khan's industrial policy incentivized industrial production and exports of value added manufactured products such as textiles. Now the country's industrial output lags its neighbors'. 

History of Pakistan's Manufactured Exports

With Chinese looking to relocate some of their industrial production to low-cost countries, Pakistan has a golden opportunity to grow its industrial output and exports again. Here's Karen Chen explaining why:

“Vietnam is too crowded already and moved into automobiles and electronics. There is no space for investment in Vietnam. Myanmar doesn’t have infrastructure. India is terrible. In Bangladesh you don’t have right conditions for setting up fabric units. So Pakistan is the ideal location for such garment manufacturing because of abundance of cheaper labour. The investment and tax policies for SEZs and new projects are also good. We’ve confidence to be at here.”

Seizing the opportunity to attract export-oriented investors will help Pakistan become the next Asian Asian Tiger economy. It will help the country avoid recurring balance-of-payments crises that have forced the nation to seek IMF bailouts with all their tough conditions. Focusing on "Plug and Play" Special Economic Zones (SEZs) is going to be essential to achieve this objective.


Riaz Haq said…
Economy to stay in low growth spiral: think tank


Despite the apparent short-term control over current account deficit (CAD), the government’s policies suggest Pakistan’s economy is to stay in the low growth, low export and close to default position, a report issued on Tuesday by a think tank said.

The Institute of Policy Reforms (IPR), a think tank led by PTI leader Humayun Akhtar, in its latest report on foreign aid and purpose advised that the government should slow down foreign borrowing instead of trying to grab every opportunity to procure more foreign loans.

It said the government has controlled the CAD at present but “the respite is precarious and likely short lived”. All indications suggest “the economy would stay in its present state of low growth, low exports, and close to default”, it added.

The IPR report anticipated further devaluation of the rupee or a more restrictive monetary policy and even more increase in administered prices. If all of that happens, the cure may turn out to be worse than the disease, the report said, adding the people of Pakistan were paying a huge cost for years of poor economic management.

IPR advises govt to slow down foreign borrowings

The most critical problem faced by Pakistan’s economy is repayment and servicing of external debt and years of ill-advised financial management has brought this stage. In the last ten years, external debt servicing (principal and interest) has ranged between one per cent of GDP in FY14 to almost 5pc of GDP in FY20. Remitting such large sums of money overseas without drawing any productive benefit from it, is a loss to the economy.

In FY20, principal and interest paid to Rs2.3 trillion to foreign creditors – almost twice the Rs1.2tr amount spent on all development, federal and provincial. Just interest paid to foreign creditors stood at Rs406 billion – one-third of total development.

New external loans, often at high commercial rates, are taken to service past debt, a solution fraug1ht with risks, but one that has become especially acute in recent years. “In essence, the economy is in a debt trap,” the report underscored.

In addition, Pakistan remits over 0.5pc of GDP in foreign direct investment (FDI) profits annually. While this is a necessary part of FDI, these are not export oriented investments. Remittance of profits adds to forex squeeze.

Also, in FY 19 and FY 20, outflow of foreign private funds invested in Pakistan government’s debt instruments amounted to $1,002 million and $241 million, respectively. This debt was incurred at a very high cost of up to 13pc. “Pakistan must end its preference for accessing any available foreign fund regardless of interest cost,” the report said, adding the country must take a deep look at its public fiscal management, i.e., how it raises funds (revenue and debt) and what it spends that money on.

In the last twenty years, Pakistan has paid external creditors more than it has received from them. Yet its external debt has grown by over 200pc from $37.2bn in FY01 to $112.9bn in FY20. We may have paid back the original loan more than once and still owe it to the creditor, the think tank noted.

Between FY01 and FY20, external debt disbursed to Pakistan totalled $112.6bn. During the same period, it has paid to foreign creditors a sum of $117.9bn in principal and interest. That is, it has paid back $5.2bn more than it received, a negative resource transfer. Of the $117.9bn paid, $90.6bn was principal, and $27.2bn was interest. Average annual interest paid was US $1.4bn. This is the result of borrowing to service past debt and the effect of compounding, which makes even concessional credit expensive. As a result, most solvency and liquidity indicators have worsened in recent years.
Riaz Haq said…
Pakistan performed better than India in apparel exports to the United States in February 2021.


Pakistan had an outstanding performance among apparel export destinations globally during February, according to Sourcing Journal, a credible source for textile sector information.

“We were the only main exporter with increased apparel supply to America during Covid-19,” said Adviser to PM on Commerce Abdul Razak Dawood in comments to The Express Tribune.

Pakistan was on top position in the list of countries that export textile, according to a report released by Apparel Resources, another international platform that gives insights into apparel industry exports.

Normally, India and Bangladesh perform better than Pakistan but this time Pakistan has fared better than its neighbouring countries despite all the challenges of Covid-19 faced worldwide.

Although the apparel import value of the US, a prominent destination for textile exports, decreased 8.7% year-on-year to $5.39 billion in February 2021, its volume increased 3.2% and Pakistan was on top of the list of countries which witnessed a hike in their apparel exports.

Other countries that recorded growth in exports included China, Bangladesh and Egypt. Pakistan and China managed to increase their apparel shipments to the US both in terms of value and volumes.

“Pakistan is showing the world that we are a reliable supply destination,” Dawood emphasised.

India, Vietnam and Indonesia experienced a decline in apparel exports to the US both in value and volume terms.

The PM aide added that government policies for the textile industry played a significant role in exports. “Our vision is to promote ‘Make in Pakistan’,” Dawood remarked.

Even though the country is performing well in textile exports, it is facing many challenges to keep up with the performance. The biggest hurdle is the decrease in cotton production in the country, which is the main raw material for the textile sector.

The country is facing shortage of around half of its requirement of cotton, estimated at seven million bales. Giving in to the pressure from the textile industry, the government recently allowed duty-free import of cotton yarn.

During the pandemic, the medical segment of textile industry such as bed wear also grew as bed sheets were discarded frequently, said DH Corporate Research Lead Karim Punjani.

After coronavirus, the world learnt the lesson regarding supply chain sustainability, which indicated that no country should rely on only one destination for imports, he said.

“Countries now want to diversify their supply chain and this is a good chance for Pakistan to grab its share in countries which imported products from other countries previously,” the analyst added.

“This will be a challenge for Pakistan; either it increases exports through existing companies or helps new players to venture into this sector.”

Through its policy, Pakistan can encourage foreign direct investment in this sector by inviting companies to move their factories from other countries to the free economic zones in Pakistan.

Riaz Haq said…
Pakistan has an untapped export potential of $66.1 billion
The authors stress the fact that Pakistan's current policies such as protectionist trade policies, including high tariffs deterring the industries like the textile sector of Pakistan from modernizing, accessing global markets, and being regionally competitive.


The World Bank in its recent report states that Pakistan’s potential annual exports are $88.1 billion, about four times the current level. The opportunity cost of these missing exports is estimated at “893,000 jobs and $ 1.74 billion in foregone taxes alone, of which 152,000 jobs could have been created in the agriculture export sector, and 741,000 jobs could have been created in the manufacturing export sector.”

However, neglecting this potential by seeking short-term economic fixes, raising the cost of doing business, and making procedures unnecessarily bureaucratic has retarded any progress in the economy.

The present government took cognizance of the essential nature of regionally competitive energy tariffs to allow exports to even continue at the present level or increase marginally. However, there remains a large gap between actual and potential exports, or “missing exports,” placing Pakistan among the top quartile of the distribution of missing export countries.

Pakistan’s exports would need to grow at the same rate as Vietnam’s for 10 years, or Bangladesh’s for 13 years, to match its potential. This is quite achievable given the growth achieved in the past by China, Vietnam, and Bangladesh, but will require focused dedicated long-term policies, and a level playing field on energy rates in particular.

There is an urgent need for transparency and rationalization in Pakistan’s tariff policymaking. Import tariffs on industry inputs ultimately serve as a tax on exports thereby hampering the profitability of the very sector that is positioned to enable economic growth for Pakistan.


Research has shown that productivity in Pakistan has been stagnant and aggregate gains have been mostly driven by more productive firms gaining market shares. This situation is likely to persist if timely efforts are not made to ease import conditions, rationalize tariffs, value competition, and markets and modernize education in the country.

High-potential Asian destinations must be targeted as export destinations, rather than low potential African, Latin American, or Pacific Island ones.

Furthermore, the Pakistan government needs to negotiate market access with high potential destinations. “Central Asian republics are a high potential for Pakistan, because of high missing exports to those countries, and because of their import dynamism. Preferential trade agreements with Uzbekistan or Kazakhstan should be priorities, along with the negotiation of agreements on transit trade with Afghanistan to facilitate physical access to those markets.”

It is about time the government, academia, and industry linkages were strengthened to stimulate R&D and innovation, thereby paving the way for enhanced productivity. Policies should target and facilitate young innovative companies to build them up and help to modernize Pakistan’s business environment.

Furthermore, the focus should be shifted towards taxing profitability, as taxing before giving the chance to be productive would be akin to jumping the gun, and would stifle many potential startups. Tariffs on intermediate inputs hamper productivity downstream, creating burdensome import conditions. This phenomenon serves to increase the cost of production, hampers profitability, and results in price escalation. Products are thus rendered uncompetitive in the international market.
Riaz Haq said…
Effect of Workers Remittances on Private Savings Behavior in Pakistan

by Rahila Munir, Maqbool Sial, Ghulam Sarwar and Samina Shaheen


The worker remittances are an important component of national savings, increased enormously at the rate of 30 percent per annum during the last eight years (2000-2007) and be around $ 5.5 billion by June, 2007. With higher increase in worker remittances and rate of return on deposits the level of national savings would increase more.
Riaz Haq said…
The rise and rise of remittances
Mohiuddin Aazim


Remittances remained above the $2 billion mark in December 2020 for the seventh month in a row. In the first half of 2020-21, inflows totalled $14.2bn. The amount was about 25 per cent higher than $11.37bn received in July-Dec 2019.


But if a reasonable portion of remittances goes towards savings and investment, it will be more helpful and reduce our dependence on external borrowings.

The PTI government is trying to promote such savings and investment by facilitating and incentivising overseas Pakistanis to use their remittances’ accounts for investing in Pakistan’s debt, equity and mortgage markets. Long-term success of this policy, however, depends on close coordination of fiscal and monetary authorities and overall political stability.
Riaz Haq said…
Two trillion rupee stimulus revives #Pakistan's #economy. Rising foreign exchange reserves, improving current account balance & economic indicators such as #manufacturing, #cement, #automobiles and #FMCG, the economy is moving again toward higher growth https://www.khaleejtimes.com/business/economy/rs2t-stimulus-revives-pakistans-economy

Top government officials, analysts and corporate leaders repose trust in the growing economy and said higher GDP growth in the five-to-six per cent per annum range is going to be a ‘new normal’ in the next five years considering strong economic indicators.

“Yes, we have a potential to grow at much higher rate in coming years. The State Bank of Pakistan [SBP] projects three per cent GDP growth in financial year 2020-21 and four per cent in 2021-22,” SBP governor Dr Reza Baqir told Khaleej Times during a recent event.

Newly-appointed Finance Minister Shaukat Tarin said Pakistan will go for an ambitious six per cent economic growth target in the next two years as the International Monetary Fund (IMF) shows its willingness to renegotiate tough conditions for a $6 billion loan in the wake of rising Covid-19 cases.

“The federal government will earmark as much as Rs900 billion [$6 billion] for development expenditure in the year beginning July. That’s the bare minimum we need for a country this size,” he said.

Climbing the charts

The IMF has projected four per cent GDP growth for Pakistan during fiscal year 2021-22, which starts in July. Islamabad is expected to post a 1.5 per cent expansion during the current fiscal year ending on June 30 after a rare contraction of -0.4 per cent last year.

“We have strong economic indicators this year despite the Covid-19 pandemic challenges and this is a good omen for the economy. The government ensures more than Rs2 trillion stimulus to steer the economy out of Covid crisis by supporting the businesses through much-needed liquidity and funds distribution at grass root level,” Dr Baqir said.

Elaborating, the central bank governor said the SBP offered Rs450 billion liquidity under its Temporary Economic Refinance Facility to the private sector to absorb the Covid shock, while another Rs240 billion was provided as working capital to avoid layoffs and job losses.

“The central bank also offered a Rs900 billion cushion to banks to ensure relief to distress businesses in deferment and restructuring of principal payment and mark-up charges. These are some of the measures which helped the economy to bounce back quickly to meet global demand after the lockdown period,” Dr Baqir said.

Referring to rising foreign exchange reserves, an orderly rupee-dollar parity, improving current account balance and other economic indicators such as large-scale manufacturing, cement, automobiles and fast-moving consumer goods, the SBP governor said the economy is moving in the right direction and will perform better in coming years.

“Pakistan is one of the few countries that reduced its fiscal deficit despite the Covid challenge and global economic slowdown by reprioritising spending. The country’s public debt-to-GDP ratio has remained broadly stable last year while it has risen for most emerging markets due to Covid; this has improved the country’s creditworthiness,” he said.


High single-digit growth

Samiullah Tariq, head of research at Pakistan Kuwait Investment, said the country’s economy should grow at much higher rates to realise the true economic potential of the country.

“Pakistan is a nation of 220 million-plus people and every year new earners are now coming into the main stream. Renewable energy is providing everyone a sustainable and cheap energy making lives easier and production cheaper,” Tariq told Khaleej Times.

“IT, e-commerce, the Internet and cellular sectors have huge potential to drive economy into fast lane and achieve much higher GDP growth in next five years. High signle-digit growth is going to be a new normal in years to come,” he said.
Riaz Haq said…
#Bangladesh GDP per capita has risen 9% last year, rising to $2,227, making it richer than #India & #Pakistan. Pak per capita income is $1,543. India’s per capita income is $1,947. Bangladesh #exports have grown at 8.6% every year vs 0.4% global average. https://www.bloomberg.com/opinion/articles/2021-05-31/india-and-pakistan-are-now-poorer-than-bangladesh

India — eternally confident about being the only South Asian economy that matters — now must grapple with the fact that it, too, is poorer than Bangladesh in per capita terms. India’s per capita income in 2020-21 was a mere $1,947.

Don’t hold your breath expecting India to acknowledge Bangladesh’s success: Right-wing figures in India are convinced Bangladesh is so destitute that illegal migrants from there are overrunning the border. In reality, Bangladesh is far richer than the depressed Indian states where Hindu nationalist politicians have been railing against Bangladeshi “termites.” It’s as if Mississippi were fretting about illegal immigration from Canada.

Perhaps that explains why Indian social media exploded with indignation and denial when the GDP numbers were announced. Meanwhile, Bangladeshi media have made little of the comparison. That’s the sort of self-confidence that comes from growing consistently.

Bangladesh’s growth rests on three pillars: exports, social progress and fiscal prudence. Between 2011 and 2019, Bangladesh’s exports grew at 8.6% every year, compared to the world average of 0.4%. The success is largely due to the country’s relentless focus on products, such as apparel, in which it possesses a comparative advantage.

Meanwhile, the share of Bangladeshi women in the labor force has consistently grown, unlike in India and Pakistan, where it has decreased. And Bangladesh has maintained a public debt-to-GDP ratio between 30% and 40%. India and Pakistan will both emerge from the pandemic with public debt close to 90% of GDP. Fiscal restraint has allowed Bangladesh’s private sector to borrow and invest.

Bangladesh’s success brings its own set of problems. For one, its exports benefit from the country’s participation in various mechanisms that allow tariff-free access to developed economies, such as the U.S.’s Generalized System of Preferences. These groupings are only open to the world’s least developed countries. Thanks to its growth, Bangladesh will likely have to give up these privileges by 2026 or so.

As its economy matures, its comparative advantages will also change. Like Vietnam and others, it will then have to shift emphasis away from garments to higher-value exports. The transition will test Bangladesh as it has those other nations.

The government needs a strategy for the next decade that focuses on new forms of global integration and on a continued transformation of the economy.

Riaz Haq said…
The government says the size of Pakistan’s economy will grow to $296 billion at the end of current fiscal year in June from $263 billion last year.


This massive growth in dollar terms is partly due to an estimated 4% economic growth in rupee terms this year against 0.4% slump in the previous year and partly because of a record appreciation in the rupee value.

In 10 months and three weeks of the current fiscal year (from July 1, 2020 to May 21, 2021), the rupee gained 8.5% of its value against the US dollar.

What is more heartening is the fact that the rupee’s gain is not artificial. It is very much real. It is not that the State Bank of Pakistan (SBP) has pumped in lots of dollars into the forex market to pamper the rupee. On the contrary, thicker inflows of remittances from overseas Pakistanis have contributed the most to the rupee’s strength.

However, it is unwise to expect that remittances will continue to grow in the next fiscal year at the same pace that they grew during this fiscal year. In 10 months of current fiscal year (between July 2020 and April 2021), the remittances surged to about $24.25 billion from about $18.8 billion in the same period of previous fiscal year. This 29% increase in remittances is a very welcome development.

Read: Economy back on growth track as predicted: Umar

But let’s not forget that so far Pakistanis living abroad have not only been sending foreign exchange back home to support their families, but also they have been repatriating funds to invest in the housing sector and in government debt papers via the Roshan Digital Account.

Meanwhile, export of manpower from Pakistan fell drastically in CY20 to only 224,705 from 625,203 in CY19, according to the Bureau of Immigration and Overseas Employment. This decline in the number of new overseas job-seekers is bound to affect inflows of remittances after a time lag, most likely from the beginning of upcoming fiscal year in July.

Between January and April this year, 107,418 Pakistanis went abroad for jobs. If this number keeps on rising and touches the level seen two years ago, that may help ensure sustained high inflows of remittances.

But that seems a remote possibility given the economic issues facing Saudi Arabia and the UAE (two main host countries for Pakistani diaspora) and given the fact that Pakistan’s strategic relationship with these countries is not as friendly as in the past.

Exports and imports

Merchandise export earnings in 10 months of current fiscal year rose 13.6% to $20.9 billion from $18.4 billion in the year-ago period.

But the problem is imports which grew faster – about 17.8% – and the merchandise import bill in 10 months of FY21 swelled to about $44.75 billion from about $38 billion in the same period of last year, according to the Pakistan Bureau of Statistics. So, unlike remittances, merchandise exports cannot be relied on for providing real support to the external sector because of expansion in the trade deficit.

Total foreign investment, including foreign direct investment (FDI) and portfolio investment, almost doubled to $3.76 billion in 10 months of current fiscal year against $1.88 billion in the year-ago period, according to the SBP. But this has been solely due to a massive foreign investment in government debt securities (read hot money). FDI, in fact, fell 32.5% to just $1.55 billion from $2.30 billion. This is alarming. Isn’t it? Foreign portfolio investment in government debt securities can fly out of the country if investors find better investment opportunities elsewhere in the world notwithstanding the fact that the bulk of it is from overseas Pakistanis.

Besides, unlike FDI, the foreign portfolio investment does not play a significant role in promoting industrialisation, modernisation of agriculture and expansion in the services sector, which will lead to better economic growth prospects. It just helps the government to fix the holes in its current account and stabilise the rupee for the time being.

Riaz Haq said…
The government says the size of Pakistan’s economy will grow to $296 billion at the end of current fiscal year in June from $263 billion last year.


Large-scale manufacturing (LSM) output that grew 9% year-on-year in nine months of current fiscal year is estimated to finish the full year in June with even higher growth of 9.3%, according to the government’s provisional estimates.

If this turns out to be true and if the agriculture sector’s estimated growth of 2.8% also turns out to be accurate, then a near 4% economic growth for this fiscal year seems likely.

However, the LSM growth this year is entirely due to last year’s low base effect, when it had slumped more than 10%. This means achieving LSM growth in the next fiscal year will be a really tough task, more so because of the planned energy price hikes as demanded by the IMF.

Read more: ‘ADP aims to revive pandemic-hit economy’


Much depends on whether new Finance Minister Shaukat Tarin will be able to win relaxation in the IMF demand for accelerated withdrawal of energy subsidies and rationalisation of subsidies meant for export-oriented sectors.

The estimated 2.8% agricultural growth this fiscal year will still fall short of last year’s 3.3% expansion. This effectively means despite all the tall claims of PTI about bringing agricultural revolution, nothing has so far happened.

In the next fiscal year, all eyes will be fixed on what exactly is done by the federal and provincial governments to boost agricultural output.

Sindh is already complaining that it is constantly being kept in the dark about the details of Sino-Pak cooperation in agriculture under the next phase of CPEC. Besides, agriculturists across Pakistan are irked by a steep rise in prices of farm inputs. That, too, is a serious issue.
Riaz Haq said…
Pakistan’s investment to GDP ratio declined to 15.2 percent from 15.5 percent of Gross Domestic Product (GDP) though savings to GDP ratio improved to 15 percent from 13.8 percent of GDP during the outgoing fiscal year of 2020-21.


According to approved working paper of National Accounts Committee, the total Gross Fixed Capital Formation (GFCF) is projected at Rs6,492 billion but remained short to achieve the fixed target.

The low investment and savings in terms of GDP resulted in repetition of history of the boom, bust cycles for the country’s economy. The outgoing fiscal year GDP growth forecast of 3.94 percent demonstrates that the growth is fueled by higher consumption as an investment both at domestic and foreign levels failed to get the desired results.

The annual plan for outgoing fiscal year 2020-21 had envisaged that investment to GDP ratio would increase to 15.5 percent of GDP in order to achieve sustained and inclusive growth keeping in view post Corona crisis. Fixed Investment was projected to grow to 13.9 percent of GDP in 2020-21.

National Savings is targeted at 13.8 percent of GDP. The focus is to replace consumption-led growth with investment-led growth. New Monetary policy posture with the reduction in interest rate will encourage investors and consumer financing will boost economic activity. Numerous measures to improve ease of doing business (such as tax holiday to special economic zones, withdrawal on constricting taxes on banking transactions) are expected to boost capital formation and attract both domestic and foreign investment.

The low growth phenomenon re-emerges after every few years mainly because of the country’s inability to generate investment and savings in the percentage of the GDP to fuel desired GDP growth at a sustained level.

The incapability of generating the desired level of investment and savings forced the regimes to increase reliance on financing from external avenues, which ultimately shoved the country deeper into twin deficit crisis soon after achieving growth of slightly over 5 to 5.5 percent for two to three years’ period. India’s GDP growth has averaged 6.5 percent over past two decades, compared to 4.4 percent for Pakistan. Vietnam’s growth has averaged over 6.7 percent and even Bangladesh’s has averaged 5.4 percent, outperforming Pakistan.

Pakistan requires investment for sustained growth. In the decade of 90s, Pakistan’s Gross Capital Formation was at par (or better) than its peers. Since 1995, Pakistan’s GCF has gone down, while that of peers has increased substantially.

Private sector has remained shy due to high cost of doing business and energy & security constraints. Pakistan’s Public Sector Development Program (PSDP) spending has declined sharply from average of 10 percent of GDP in 1980s to just 4.7 percent in FY18 and now it is going to fall further in the next fiscal year. Bottom line, Pakistan needs 20 percent growth in investment to get a GDP growth rate of 5 percent. Secondly, Pakistan lags behind its peers mainly because of its failure to jack up savings as savings ratio in Pakistan was pathetically low around 16 percent, while in China it is 46 percent, India 31 percent, Bangladesh 33 percent, Sri Lanka 25 percent, and in Vietnam it hovered around 24 percent.

The investment to GDP ratio was estimated at 16.7 percent of GDP when the PML (N) was ruling over the country in 2017-18.

Now savings to GDP ratio improved in the current fiscal year because the current account deficit is projected at negative 0.2 percent of GDP as overall there is projection of current account surplus of $400 million for the outgoing fiscal year.

The low investment and savings in percentage of GDP continued to remain the largest challenges for the country’s economy because such low level cannot fuel long and sustainable growth trajectory.

Riaz Haq said…
#Pakistan earmarks PKR 3.06 tr ($20 billion) for #debt servicing (including interest payments) in the next fiscal year 2021-22, up from Rs 2.94 tr ($18.9 billion) this year. Fed govt allocated Rs 1.6 tr ($10.26 billion) for #foreign debt payments in FY22. https://www.dawn.com/news/1628877

The government has allocated Rs3.060 trillion for debt servicing (including interest payments) in the next fiscal year 2021-22.

During the current fiscal year, Rs2.94tr had been earmarked for the same.

The federal government allocated a sum of Rs1.6tr for foreign loans repayment, short-term loans and other advances in FY22. Rs1.49tr has been allocated for debt servicing in the current fiscal year, however, revised estimates placed it at Rs1.06tr.

Foreign Loans repayment for FY22 will be Rs1.42tr against Rs841 million for the current fiscal year. For short-term foreign credits, Rs74.4bn has been allocated for the next fiscal year. This year, revised estimates for short-term foreign credits are at Rs121.9bn.

According to the Pakistan Economic Survey of 2020-21, total public debt was recorded at Rs38,006bn at end March 2021, registering an increase of Rs1,607bn during first nine months of current fiscal year (9MFY21) which was much less when compared with the increase of Rs2,499bn witnessed during the same period last year.

The increase in total public debt during 9MFY21 was even lower than the federal government borrowing of Rs2,065bn for financing the fiscal deficit. The differential is primarily attributable to appreciation of the Pak rupee against the US dollar by around nine per cent which led to a decrease in the value of external public debt when converted into the local currency.

Debt from multilateral and bilateral sources cumulatively constituted over 80pc of external public debt portfolio at end March 2021. A set of reforms initiated by the government to improve the economy has brought strong support from multilateral development partners during the last two years. This is expected to strengthen confidence and catalyse additional support from development partners’ public debt in the coming years which will also help in reducing the pressure on domestic sources.

Pakistan is availing the G-20 Debt Service Suspension Initiative (DSSI) for a period of 20-months (May 2020-December 2021) which will help defer the debt servicing impact to the tune of around US$3.7bn during this period.

The government remained within the benchmarks and thresholds defined in the Medium-Term Debt Management Strategy (MTDS) at the end of December 2020.

The Economic Survey claims that Pakistan has witnessed one of the smallest increases in its public debt during the Covid-19 pandemic. Global public debt to GDP ratio increased by 13 percentage points – from 84pc in 2019 to 97pc in 2020 – whereas Pakistan’s Debt-to-GDP ratio witnessed a minimal increase of 1.7 percentage points and stood at 87.6pc at end June 2020 compared with 85.9pc at end June 2019.

Interest servicing was recorded at Rs2,104bn during 9MFY21 against the annual budgeted estimate of Rs2,946bn. Domestic interest payments were recorded at Rs1,934bn and constituted around 92pc of total interest servicing during 9MFY21 which is mainly attributable to higher volume of domestic debt in total public debt portfolio.

On a full year basis (2020-21), interest servicing is expected to remain below the budgeted estimates primarily due to extension of DSSI from January to June 2021, appreciation of Pak rupee against the US dollar and lower interest servicing on account of National Sav­ings Schemes due to withdrawals against discontinued prize bonds.
Riaz Haq said…
Look at the #economic growth trend in #SouthAsia! #Pakistan #economy grew rapidly in 2000-2008 during #Musharraf years!! And then the bottom fell out!!! Bitter fruit of kleptocracy disguised as "democracy"??? #PPP #PMLN #PTI #PandoraPapers https://www.economist.com/asia/2021/10/05/pakistan-got-its-way-in-afghanistan-now-what


Mr Khan’s current diplomatic offensive comes in the context of the dwindling options bequeathed by his country’s feeble economy, hypocrisy over Xinjiang and long history of double-dealing. “Pakistan is trying to use Afghanistan to rehabilitate itself,” says Michael Kugelman of the Wilson Center, an American think-tank. “Its message is that we were right all along, there never was a military solution, so it is wrong to blame us.” What Pakistan now wants is for other countries to lend a hand, and help shore up the Taliban government as the only way of sustaining regional stability. The trouble is that just as Pakistan’s leaders imagine the country’s strategic significance to have grown because it holds unique influence over the Taliban, the West’s withdrawal has entailed a steep decline in its interest in the region.

Mr Khan may well be right that the best hope for preventing a humanitarian disaster in Afghanistan now, and for keeping a grip on jihadist groups that linger on its blood-soaked soil, is to help the Taliban keep a lid on things. “If Afghanistan destabilises, the spillover effect comes to Pakistan,” says Moeed Yusuf, Mr Khan’s national security adviser. “After Afghanistan we are the biggest victim of the past four decades and we are not interested in going there again.” But coming from a country that has for so long run with the foxes while hunting with the hounds, as Pakistan has, such words carry limited credibility. ■
Riaz Haq said…
From Musharraf to the PTI


To separate fact from fiction, key economic indicators need to be analysed. Musharraf increased reserves from $1.9 to $11.4 billion. The PPP left $7.2 billion. The PML-N reached a record high of $19.4 billion but ended at $10 billion in FY18. Reserves were $8.3 billion on October 5, 2018. No government could avert the IMF. The PTI may borrow $15 billion.

Musharraf increased the current account deficit from 0.7 percent of GDP to 4.2 percent. The PPP reduced it drastically from 8.2 percent to 1.1 percent. The PML-N ended at 5.8 percent ($18 billion) in FY18. In July 2018 it was 8.3 percent ($2.2 billion) and in August 2.3 percent ($0.6 billion) – a big drop. The dollar-rupee rate increased from 52 to 61, a 17 percent increase when Musharraf left. The PPP increased it by 61 percent to 98. The PML-N increased it by 24 percent to 121. In October 2018, it is 133.

Musharraf increased trade deficit from 2.1 percent of GDP to 8.9 percent. The PPP maintained it at 8.9 percent. The PML-N ended at 9.9 percent ($31 billion). In July 2018 it was 13.6 percent ($3.5 billion) and in Aug 9.2 percent ($2.4 billion). Exports reached a high of 13.5 percent of GDP during Musharraf’s period but ended at 11 percent. The PPP remained at 10.6 percent while the PML-N managed 7.9 percent ($25 billion). In August 2018 it was 8 percent ($2 billion).

Exports are limited to textiles (55 percent) and rice (8 percent). Dawood Razak’s target is $25 billion. Imports rose from 15 percent to 20 percent of GDP during Musharraf’s government. The PPP reduced them to 19.4 percent and the PML-N reduced it further to 18 percent ($56 billion). In August 2018 it was 17.3 percent ($4.5 billion).

Remittances were $5.5 billion in Musharraf’s term. They increased to $14 billion in the PPP’s time and $20 billion in the PML-N’s. Remittances growth dropped drastically to one percent in FY18 from double digits. Imran Khan’s target of $40 billion seems unrealistic. FDI increased from $120 million to $5 billion during Musharraf’s term. In the PPP’s time it dropped to $1.3 billion and in the PML-N’s to $2.8 billion. Pakistan’s Doing Business ranking dropped from 76th in 2007 to 147th in 2017. KSE100 Index has dropped 11.6 percent since August 20 this year. The PTI will need to address the prevailing economic and political uncertainty.

Musharraf increased GDP to 5.5 percent peaking at 9 percent. In FY09 it dropped it to 0.4 percent but the PPP ended with 3.7 percent. The PML-N managed 5.8 percent. The IMF has dampened the PTI’s grand plans with a growth rate of 3 percent, policy rate at 15 percent and inflation at 14 percent. Musharraf reduced the budget deficit from 4.9 percent to 4.1 percent of GDP. The PPP increased it from 7.3 percent to 8.2 percent. The PML-N ended at 6.6 percent (legal limit 4 percent) and borrowed Rs2,260 billion in FY18.

During Musharraf’s period, government expenditure financed through borrowing was 22 percent, PPP 36 percent, PML-N 27 percent. The tax-to-GDP ratio declined from 9.5 percent during Musharraf’s period to 8.7 percent in the PPP’s time. The PML-N increased it to 11.2 percent (Rs3,842 billion). The IMF has proposed 15 percent, a daunting task. Agriculture – with 19 percent share in GDP – contributes only one percent to taxes.

Gross public debt during Musharraf’s time dropped from 79 percent of GDP (Rs3,018 billion) to 53 percent (Rs4,846 billion) in FY07. The PPP increased it from 58 percent (Rs6,128 billion) to 64 percent (Rs14,292 billion) in FY13. The PML-N reached 73 percent (Rs24,952 billion).

PSE debt was Rs220 billion in June 2007 (16 percent of total). The PPP added Rs276 billion (20 percent), while the PML-N increased it by Rs898 billion (64 percent) to end at Rs1,393 billion.
Riaz Haq said…
From Musharraf to the PTI


The IMF recommends privatisation. PIA’s accumulated losses from 1998 to 2007 were Rs23 billion (6 percent). The PPP added Rs119 billion (33 percent) while the PML-N added Rs222 billion (61 percent) to end at about Rs364 billion. It is difficult to imagine PIA competing with Gulf airlines. Steel Mills profit were Rs9.5 billion during Musharraf’s time. The PPP recorded a loss of Rs119 billion; the PML-N increased it by Rs81 billion to Rs200 billion.

Oil prices increased from $25 in Dec 1999 per barrel to $90 by Dec 2007 (313 percent increase) during Musharraf’s period. The PPP faced over $90 in their term. The average in the PML-N’s time was $55. The PTI started at $73 but is now faced with $85. Gasoline’s average price increased from Rs26/litre to Rs56 (115 percent increase) during Musharraf’s period. The PPP increased it to Rs101 (80 percent) but the PML-N decreased it to Rs78 (-23 percent). In October this year, it increased to Rs93 (19 percent).

The total installed capacity increased to 29,573 MW by February 2017. In this, Musharraf’s contribution is 16 percent, PPP 28 percent and PML-N 56 percent. Considering the last four years of each government, Musharraf’s contribution was 30 percent, PPP 32 percent and PML-N 38 percent in electricity generation. In 2006, the circular debt was Rs87 billion. In August 2018, it was Rs1,200 billion. Musharraf added Rs145 billion (12.6 percent), PPP Rs727 billion (63.2 percent) and PML-N Rs279 billion (24.2 percent). No government has found a solution.

There is no doubt that the economy has been mismanaged. Past governments have been facing similar economic circumstances and governance realities as the PTI, whose main problem is tackling the expectations of its voters. International agencies are also culprits of the mess due to their propensity to provide loans for perpetuating poor governance and corruption. After signing the agreement with the IMF, the PTI’s 100-day agenda and election promises will be compromised. The new captain, the IMF, will carry out a heart transplant as it is not satisfied with Asad Umar’s bypass. ‘IMF ka Pakistan’ will replace ‘Naya Pakistan’.

The writer is a former member of the National Reconstruction Bureau.

Email: riazkhancrm@msn.com
Riaz Haq said…
3 Myths About ‘Un-Governable’ Pakistan
Pakistan needs to be saved from those that rule it, and especially from those want to rule it forever.

By Hussain Nadim


Calls to improve Pakistan’s image from that of a weak economy with rising extremism and corruption to a stable, internationally responsible and progressive nation are often raised in the country’s policy making circles. However, what is conveniently ignored is that Pakistan’s ruling elite has coproduced this fragility/failed state narrative to perpetuate its hold over power. Having worked in the Pakistani policy sector for over a decade, I would like to dispel three deeply-imbedded myths about Pakistan, specific to governance.

Myth #1: Pakistan is Impossible to Govern:

For decades, Pakistan’s ruling elite has justified its poor performance by claiming that it is a country that is hard to govern and whose people are “jaahil” (savages). “It is not us but you,” is the message that the ruling elite has fed the public and also transmitted to foreign countries about Pakistan to achieve short-term personal objectives over long-term national goals. After the Cold War, this messaging included a new line of narrative, pitching Pakistan as a country with a deep level of Islamist extremism that only the “moderate minded” ruling elite could help keep at bay.

The truth is that Pakistanis are easy to govern, they have very basic demands. You cut the gas, they turn to using wood. You cut electricity, they sleep on rooftops. They have little expectations from the government beyond the primitive life needs.

As for extremism, it is less to do with Islam or the public at large and more to do with how the ruling elite sowed and cultivated the seeds of religious and ethnic extremism to pursue its domestic political and geopolitical interests, especially during the Cold War.

The Pakistani ruling elite adopted a fear-based governance model instead of a rule of law-based governance. This facilitated the flow of foreign funds into the country and secured international political support to its supposedly “liberal minded” rulers so they may “de-radicalize” the “extremist” masses.

The latest in the line of fear-based and victim-driven narrative is pitching the 140-million strong youth of the country as a “ticking time-bomb,” instead of presenting them as a game-changer to the global community in the digitalized world.

Pakistan is neither an impossible country to govern nor are the people inherently extremist. It is those in power that have hijacked the system for decades and have forced a functioning country into a dysfunctional state, keeping it deliberately on a brink of failure. It is this state of brink that creates a hyper sense of fear and victimhood, providing the ruling elite leverage with actors at home and abroad.

Myth #2: It is the Incompetence:

There is only so much that the ruling elite can blame Pakistan or its people for being hard to govern, especially 70 years after it emerged an independent country. Incompetence is simply a narrative to mask and perpetuate deep corruption.

The incompetence myth played well, both at home and abroad. It has convinced the public at home and the foreign audience that a moderate/liberal minded incompetent government is better than a worst-case scenario of an Iran like “Islamist takeover” of the country. But this begs a question; how is it that the same ruling elite that is so incompetent in governance of the state is internationally competent when it comes to its private businesses?


Myth #3: The System is Complicated and Broken:

The ruling elite also uses the myth of a dysfunctional and broken system to continue its power grab on the state. The narrative on “broken system” helps the ruling elite buy sympathy and time from the public to undertake the pipedream of “reforms” and also touches the right chords with foreign powers to secure technical assistance in capacity building projects and development aid.
Riaz Haq said…
Arab News Pakistan
#OPINION: Over the last three years, #Pakistan’s savings rate has improved from a low of 5.4 percent to 19.9 percent since 2020-- all helped by a robust growth in remittances and a deepening financial system, writes


Riaz Haq
Nearly 4X increase in #Pakistan’s #savings rate in past 3 years is very welcome news for the country’s #economic growth! Savings are extremely important for increased #investment to spur #gdp growth in any country, including Pakistan.


Over the last two decades, Pakistan has not only experienced a chronically low gross domestic savings rate but has also seen the savings rate decline until recently. According to data from the World Bank, the gross domestic saving rates fell from 16.4 percent in 2000 to just 5.4 percent in 2019. Pakistan’s savings rate compares unfavorably with East Asian countries and South Asian peers. Bangladesh and India have seen their savings rates increase over the same period, which in 2019 stood at 25 percent and 28.2 percent respectively.

Several studies show the relationship between the savings rate and economic growth, especially in developing countries. Economist Robert Solow first argued that larger savings result in higher investments and increased production (Quarterly Journal of Economics, 1956). Other economists such as McKinnon (Money and capital in economic development, 1973) and Shaw (Financial deepening in economic development, 1973) further emphasized the causative relationship between savings and economic development. Empirical evidence shows that as income increases with higher economic growth, it tends to also boost capital accumulation. Such favorable conditions help create a virtuous cycle of further investment and accelerating economic growth.
However, it is not always easy to identify the determinants of a society’s savings propensity. The collective spending behavior of households and public and private entities is subject to several interdependent social and economic factors. Literature suggests that a major factor of savings rates is the level of financial deepening in a society, that is, inter alia, the percentage of the population holding bank accounts, the development of financial markets and the diversity in financial instruments available.

Other factors influencing the savings propensity include culture, religion, and demographic factors such as the labour force participation rate and dependency ratio. Pakistan’s high fertility rate and burgeoning dependent youth population does not encourage household savings. The interplay of disparate factors is not always obvious, and yet often converge to affect the direction of the national savings rate. There is a consensus that people with high levels of income have a greater propensity to save and vice versa. However, for this to be sustainable, the growth should be through productivity gains and not consumption driven that is fuelled by external borrowings. If higher incomes do not result in investments in productive capacity, then the long-term savings rate is unlikely to improve and may even decline.

That has been the case with Pakistan where the economy expanded despite relatively low and declining domestic savings rates between 2000 and 2019. Such a growth model was unsustainable because the savings-investment gap was filled by foreign funding, primarily in the form of borrowings. More perversely, the economic growth was largely consumption-driven and masked the structural issue of low savings rate. It has led the country closer than ever to a foreign debt trap where the bulk of new external funding is not deployed in productive capacity but rather to service old foreign debts.

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