Growth sustainability

LAHORE: Sustained growth of seven percent or more for a few decades is essential for Pakistan to wriggle out of its economic troubles. At this pace of expansion, an economy almost doubles in size every decade.

Unfortunately, our average growth in the 90s was less than five percent, while in the first 23 years of this century, the average is hardly four percent. We do not expect GDP growth to touch the seven percent target in the near future. We have to institute reforms and emulate the good practices adopted by countries that managed sustained growth for a long time.

Thirteen economies Botswana; Brazil; China; Hong Kong, China; Indonesia; Japan; the Republic of Korea; Malaysia; Malta; Oman; Singapore; Taiwan, China; and Thailand have grown at an average of 7 percent for 25 years since 1950.

The economic models of these nations were diversified and provided impetus to reforms instituted by numerous economies thereafter. The new sustained growers include India, Bangladesh, Cambodia, Vietnam, Brazil and many others. Now few African and East European economies are on the same path.

Growth makes it possible to achieve other important objectives of individuals and societies. It spares people en masse from poverty and drudgery. Nothing else ever has.

Sustained growth requires a long-term commitment by a country’s political leaders, a commitment pursued with patience, perseverance, and pragmatism. Unfortunately, our political leadership is nowhere near to that commitment.

Sustained growth allows fast-growing economies to import ideas, technologies, and know-how from the rest of the world. Foreign direct investment, and foreign education was courted by several high-growth economies. Since learning something is easier than inventing it, fast learners can rapidly gain ground on the leading economies. Sustainable, high growth is catch-up growth.

The economies that have looked inward for competing with imports in the home market, rather than competing for foreign custom in the world market.

These strategies occasionally succeeded in spurring investment, increasing the size and efficiency of domestic producers. But strategies that rely exclusively on domestic demand eventually reach their limits as has happened in Pakistan.

As the economy expands and branches out, new ventures draw underemployed workers out of traditional agriculture into more productive work in the cities.

This investment is itself affected by the availability of savings. High-growth economies typically set aside a formidable share of their income: a national saving rate of 20–25 percent or higher, is not unusual. Our national saving rate is half than the minimum needed for accelerating growth. In principle, countries could rely more on foreign capital to finance their investment needs but we have reached a stage where the foreign financing is needed to cover our fiscal deficit. Green field projects stay away from Pakistan.

Growth at a needed quick pace, over long periods lasting decades, requires strong political leadership. Policymakers have to choose a growth strategy, communicate their goals to the public, and convince people that the future rewards are worth the effort, thrift, and economic upheaval.

They will succeed only if their promises are credible and inclusive. Such leadership requires patience, a long planning horizon, and an unwavering focus on the goal of inclusive growth. Many fast growing economies were overseen by a single-party government that could expect to remain in power for a long period of time.

In other cases, multiparty democracies found ways to be patient and maintain a consistent focus over time. Rival political parties can, for example, agree on a bipartisan growth strategy, which they each follow during their term in power. This bipartisan agreement has remained elusive among political parties in Pakistan.

Governments should sometimes proceed step by step, avoiding sudden shifts in policy where the potential risks outweigh the benefits. This will limit the potential damage of any policy misstep, making it easier for the government and the economy to right itself.