An overview of Pakistan's Economy. A bloody struggle of Muslims of south Asia under the leadership of Quaid e Azam Muhammad Ali Jinnah, culminated Pakistan on 14th August 1947. She started her journey as a country without many resources, no machinery, no industry, not much educated middle class, a huge problem of refugees and a neighbor always waiting for the kill. In 63 years Pakistan has come a long way, she is now 27th biggest economy of the world and the only nuclear power in the Muslim world.
Pakistan came into being after the division of the sub continent; she consists of the western part of subcontinent.It has a 1,046-kilometre (650 mi) coastline along the Arabian Sea and Gulf of Oman in the south, is bordered by Afghanistan and Iran in the west, and India in the east and China in the far northeast. Tajikistan also lies very close to Pakistan but is separated by the narrow Wakhan Corridor. Thus, it occupies a crossroads position between South Asia, Central Asia and the Middle East.
By having Arabian Sea in south, she enjoys a great strategic location especially when seen as a trade route to Afghanistan, central Asian countries, Russia and China.Pakistan has the gift of immense mineral resources, favorable climate through out the year and a fertile land for agriculture. Hence it has all the ingredients which are the prerequisites of a strong economy. The building of Pakistan’s Economy consists of 3 main pillars; these are Services, Industry and Agriculture.
Pakistan is said to be an Agricultural country as above 21% of the total contribution in income come from agriculture, in addition it is the main source of raw material for the industries, especially textile and sugar cane industry.Agriculture of Pakistan consists of 4 main components they are crops, forestry, live stock and fisheries. Major crops of Pakistan are Cotton, Sugarcane, Rice, Wheat, Maize and Pulses. Cotton being a non food cash crop contributes significantly in foreign exchange earnings.
Current production of cotton is above 12 million bales and it contributes around 1. 8% in GDP, while Sugar Cane and Rice contribute 0. 8% and 1. 4% in Pakistan’s GDP.
Forestry is also an essential contributor to the GDP, as it provides wide range of useful goods such as wood, food fodder and other recreational activities.Forest cover in Pakistan is about 5. 2%, and that too is on an increasing trend. Live stock is the 3rd pillar of agriculture, it covers more than 50% of total agriculture value added and its contribution in GDP is 11.
4%. It provides meat and milk for the domestic consumption and leather for the leather industry. Pakistan is the 4th largest milk producer in the world; in addition the growth in the population of cattle ensures the immense potential in this field. Last but not the least is the fishery, it provides white meat besides it’s a source of livelihood for the habitants near coastal areas.
Pakistan fishery doesn’t only satisfies domestic demand but also it is contributes in exports. To support the agriculture of a country it’s important to have ample water resources. Pakistan is fortunate in this regard. She has the most expensive and the most effective irrigational system in the world. Five rivers Ravi, Chanab, Jhelum, Sutlag , Bais, as well as the Kabul river flow in Pakistan to support the irrigation and canal water system. Tarbella dam on Indus, Mangla Dam on Jhelum along with many other small and medium sized dams play the role of water storage and Power Generation.
These ample resources are great source of hydel power which currently contributes around 57% of total production and have a enormous potential of growth. Other then that, the 2nd most important source of energy production is Thermal energy; as it contributes more than 40% in the total energy production. However this is an expensive source as the fuel is an imported product and require foreign exchange. Efforts are being taken to shift to other cheap resources of power generation like coal, gas, wind and sunlight.
Coal and Gas along with other mineral resources, like Gypsum, Salt, precious stones, is found in the soil of Pakistan. Other than agriculture the biggest contributor in GDP is Service Sector, as it provides more than 50% in the GDP. Major portion of the services sector consists of financial and insurance sector. This is the largest source of employment for the educated middle class.
Other than that services sector is divided into transport and communication, whole sale and retail trade, ownership of dwelling, social community and personal services.All these small sectors in the economy play a vital role in moving the vehicle of the economy. Their significance lies in their ability to provide large number of vacancies, especially for the middle and lower middle class. Third and the last contributor in our economy is industry. It contributes around 20% in the total GDP and shares 13% of total employment.
It is sub-divided into 5 key junks. One of them is mining and quarrying, responsible for extraction of minerals, oil and gas from the soil. Manufacturing is the biggest contributor in industry.Manufacturing consists of cement, automobiles, fertilizers, chemicals, petroleum, pharmaceutical, leather products, food and beverages, sports goods, electronics, paper and paper board, engineering products and tyres and tubes. The structure of Pakistan’s industry shows its dependence on the agriculture sector as most of the raw material for industry come from agricultural sources.
Especially in Paper and paper board, food and beverages, sports goods and textile. Apart from manufacturing, construction has also gained massive importance in the recent years, courtesy high investment in real estates.Its role is more prominent when it comes to providing employment to the lower class uneducated labor. Pakistan industry is the back bone of Pakistan’s export and growth in it can lead to solve various economic problems, precisely trade deficit. Fortunately Pakistan has all the building blocks, necessary for the healthy progress of the economy.
But the journey hasn’t been a smooth one. The nation has always faced various challenges which have always hampered their growth, and they had to start it from the scratch. In the past decade, we have seen great to and fro in the growth; it has touched the peak at 8. % in 2006, where as thrown to ground at 2. 1% growth in 2009.
This inconsistent growth has made it difficult for the policy makers to predict the trends and design a policy to keep inflation and unemployment under control. One of the reasons of Pakistan being in such mess is the failure to allocate investments in productive economic activities. It’s imperative that the investment should be used to revive the industry, so that it can provide employment, augment supplies hence shrinking inflation. Investing in industry rather than real estate or stock will also decreases the chances of capital flight.
Another challenge to the economy is of the twin deficit that is fiscal and trade deficit. Fiscal deficit is the difference between the expenditure and the revenues of the government. Currently Fiscal deficit is more than 6% of GDP. There are two major reasons for low revenue collection. First, low saving rate, which is around 11%, where as it’s more than 30% and around 50% in India and China respectively.
Saving rate can be improved by providing attractive returns to the investors, may be through national saving schemes or high deposit rates. Secondly, dismal tax to GDP ratio is also responsible.A tax-to-GDP ratio of around 9% is certainly one of the lowest in the world. Serious majors are needed to be taken; especially government should broaden the tax base. It can be done by applying tax on agriculture income and by tax on capital gains. With the enhancement of revenue it is important that expenses should also be curtailed.
In addition to fiscal deficit, Pakistan is also witnessing trade deficit, which is currently hovering around $15 billion. Trade deficit is the difference between imports and exports of a country. This has been reduced by the efforts of the present government from the peak of $18 billion.However, this is not enough, a $15 billion deficit is huge and resulting in our over reliance on workers remittances, privatization and foreign aid to satisfy balance of payments. In order to bridge the gap, authorities should apply heavy taxation on the imports of luxury items like cars, mobile phones etc. Efforts are required to reduce the consumption of oil, especially in the power sector.
This can be done by shifting to other ways of power production. Simultaneously attention should be given to expansion of exports. Pakistan should try to cater new markets like European and African countries.In addition Pakistan can also go for value addition rather than exporting the raw material and leaving it on others to do the value addition and sell it with their own brand name. Lastly, good diplomatic relations with maximum possible countries will surely lead to improvement in trade. Twin deficit often results in high debt burden.
The situation is not any different in case of Pakistan. Foreign debt of Pakistan has crossed the level of $54 billion from $49 billion previous year. Debt servicing is among the top most priorities of the government, and for that it is mainly relying n pills of foreign aids and loans. That’s why they went to IMF in 2008. Although, IMF and foreign loans have given some breathing space to the government in the short run; but it is doing no good to decrease the over all burden of debt in the economy.
Most of the revenue is eaten up by repayment of debt and its interest. To tackle this high debt burden properly is a long term phenomena. It requires consistent policies and stable growth, this will lead us to an acceptable revenue growth and self sufficiency, and this should be targeted to improve balance of payment.Hence these measures will give government enough room that they can pay off the debt without sacrificing the necessary development expenditure. High debt burden combined with high fiscal and trade deficit leads to inconsistent growth, which always results in inflation.
And this is what it has done in case of Pakistan. This nation has been witnessing double digit inflation from the past 3 or 4 years. Improving on states, the CPI is around 11%, reduced from 20% previous year. But this is again nothing near to the level of satisfaction and what makes it worst is the actuality that the food inflation is the major cause of this price hike.Hence this is hitting the poor more severely.
State Bank of Pakistan (SBP) is trying to improve inflation through indirect monetary policy mainly by the use of discount rate. Discount rate is the interest rate at which SBP gives loan to schedule banks; this is considered to be the bench mark rate in Pakistan. Currently it is perched at 13%, this strategy has failed miserably, as it hasn’t controlled the inflation moreover it has increased the cost of doing business. The monetary policy applied by SBP has failed to improve the employment level in the economy in addition it’s been responsible for increasing the prices permanently.The fact that countries like Japan, Malaysia, China have a very low discount rate and still they don’t have very high inflation. Sending a clear message to SBP that they should reduce it’s over reliance on discount rate.
They will be better off if they tackle inflation directly. That is having control over the prices and not letting the market forces to decide its fate. In addition cruel punishment should be given to those who create artificial inflation in the country. Along with these economic problems another quandary, which has hampered the ndustrial growth and has caused frustration in the social sector is the Power crises.
The demand of electric power has outdone the supply; the shortfall is current around 4000 MW. What ever power is supplied has become very expensive for the end user. Power generation through imported raw material that is oil has been the main culprit. More than 40% of the power generation is through thermal means where as world average contribution of thermal energy in power generation is 16%. This tells us the complete story of the suffering of the Pakistan people.
It is imperative that government should realize its potential of producing power from alternative resources. For example sources like coal, wind and solar energy and be used along with improvement in hydel resources to bridge the gap between demand and supply. In addition it will provide electricity at cheaper rate, improving the industrial productivity and social conditions. All these economic crises have resulted in stern impact on the social sector of Pakistan. Due to high debt burden, war on terror and other climaties government had to cut down their development expenditure prominently, causing the poor population to suffer.
Especially the health and education sector took most beating. In a country like Pakistan where only 45% of the population comes under the umbrella of literacy, education must be given the top most importance. But the situation is opposite. Government schools tell a sorry tale, they provide everything but quality education. Consequently, this has increased the gap in level of quality of education between private and public schools to a frightening level. The fate of the government health institutions is not too different.
They either lack paramedical staff or medicines. The eminence of health services provided by these institutes is below the lowest possible level. These basic needs have become luxuries for the poor. He is more worried about earning food, which is becoming rather more difficult for them, thanks to Inflation and unemployment. Poverty has increased to a distressing stage of 34% which has broadened the gap between the poor and the rich.
Promoting inequality and evacuating the middle class. All these challenges if not answered properly will lead to more social degrading.Deteriorating law and order situation, War on terror, augmenting suicide bombing to a level of routine, increasing corruption power crises and recent climates have refrain government to focus completely on the economy. However this is the time government should tackle the economic and social problems properly.
An appropriate and consistent itinerary is needed. Government should start with expending its resource base, tax should be imposed on every one who is currently free from it and it should also not affect the poor.This will help in raising the revenue, which should be channelized in reviving the industry and the development of agriculture. Industrialization and agriculture growth will help in improving the trade deficit. Thus resulting in export led growth. Voters expect their democratically elected government to help them solve their problems.
But it looks as if problems are swelling leaving the poor hopeless. All these issues should be addressed fast in order to revive the confidence of the common man in the system.
