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|
|US Aid to Pakistan 2001-2020|
|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.
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|
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