Let’s start with a broader concept: productivity is considered a key source of economic growth and competitiveness and, as such, is the basis for many international comparisons and country performance assessments. Productivity isn’t everything, but in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. So now, if we relate this concept to our economy’s per capita income, we are far away from effectively implementing it and raising our per capita income to be a productive country.
Let’s start with a broader concept: productivity is considered a key source of economic growth and competitiveness and, as such, is the basis for many international comparisons and country performance assessments. Productivity isn’t everything, but in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. So now, if we relate this concept to our economy’s per capita income, we are far away from effectively implementing it and raising our per capita income to be a productive country.
As an economist, I believe the biggest challenge is: how can we organize ourselves to reach that position where we can bite the bullet. We lack for a variety of reasons, including energy crises, inadequate consumption patterns, security of life, unutilized natural resources, a persistent trade deficit, a lack of governance and accountability, excessive spending on non-development expenditures, and a declining share of exports in the global market.
Additionally, it should be remembered that the adoption of basic structural reforms is the only option available for economic managers once cyclical macroeconomic policies stop working. Right now, Pakistan is at a tipping point. One of the primary challenges we face today is our energy crisis. At present, Pakistan imports a third of its energy resources and ranks among the lowest (99 out of 110) in energy security, according to the World Energy Council.
The recently published Indicative Generation Capacity Expansion Plan (IGCEP) 2021–2030 has outlined plans to expand hydro as well as solar and wind generation so that they account for 60 percent of Pakistan’s energy generation by 2030. The rest of the demand is expected to be fulfilled by local and imported coal and RLNG, among other sources.
Nonetheless, even if these goals are attained, imported coal and RLNG will still make up around 24 percent of the installed capacity in 2030. Because of the country’s continued reliance on imported fuels, its foreign exchange reserves will continue to be hurt, and the economy will be vulnerable to rapid fluctuations in gasoline prices brought on by events in other countries’ politics. In formulating a long-term strategy, Pakistan will have to reconcile three main aspects of its energy profile: It needs a fuel mix that is predominantly indigenous, emits little carbon, and can support an ecological system that makes it possible to control grid loads effectively.
Security of life is another challenge we are facing in our country. Establishing the security of life or public order is necessary for at least two key reasons. First, safeguarding other rights depends on establishing the state’s authority over violence. Second, a community with more security is less likely to see public disruption, which lowers expensive economic uncertainty. The good news is that Pakistan’s successful counterterrorism initiatives have reduced this instability significantly, though the country still has higher levels of violence than many other comparison countries.
Our unhealthy consumption habits are another problem that contributes to our lack of productivity. The quantity of money that is available to invest for economic growth and improvement is insufficient because we spend 85 of every 100 rupees of our national income while saving just 15 of them. If we want to rely on domestic savings, our savings rate should be 25 percent and our investment rate should be at least 24–25 percent. Then we will be in a position to grow by 6 percent. India’s savings rate was roughly the same, but they had previously recorded 34 percent savings rates. China has a savings rate of 50 percent; therefore, this disparity explains why we are having severe problems because, as a country, we must acknowledge this issue. We have to at least double our savings rate; otherwise, we will remain dependent on foreign sources.
Persistent trade deficit is another issue that is punching our economy hard. According to the IMF, during the past decades, Pakistan’s exports as a percentage of GDP have decreased as export volume growth has stagnated amid significant deindustrialization. As a result, Pakistan’s contribution to the world economy has been continuously decreasing. The export basket is dominated by basic items at the bottom of the value chain and is technologically primitive. India’s exports topped $400 billion in FY2022, a record high that was comfortably higher than the $300 billion five-year average prior to the coronavirus outbreak.
The export revenue of Bangladesh increased by 35.14 percent, from $32.07 billion in the year 2020–21 to $43.34 billion from July through April of FY 2021–22. Despite their turbulent democracies and massive corruption, India and Bangladesh have both surpassed Pakistan in terms of development by a wide margin. The main reasons are political stability and a comparatively higher level of human development, especially the female literacy rate and the increased participation of women in the workforce. In principle, a lot more will need to be done, but the current government’s position is weak due to instability and an uncertain atmosphere, especially the policy choices. However, if the foreign exchange reserves keep declining and the rupee crosses an unforeseen level versus the US dollar, any additional delay in taking remedial action would further worsen the volcanic crisis and our productive growth.
The writer is an economic analyst
