Friday, September 09, 2005

Conversation about the Pakistani economy

This conversatoin was triggered by a news item about a forthcoming report from the Asian Development Bank, which predicted that Pakistan's economic growth for the coming year would be around 6.5%, down two percentage points from the past year.


This is not true, and I say that as an economist. All the Asian tigers have had growth rates upwards of 8% back to back for many years, with China being in front of that pack. Even India is now entering that space.

Pakistan needs such 8% growth rates to make a dent in its poverty levels. For how long is more than a third of the population going to get by on an income of less than a dollar a day?

Inflationary pressures arise when economy-wide demand exceeds economy-wide supply. If they make the right kind of investments, supply will grow and the risk of inflation will be managed. China invests something like 35% of its GDP on developing new capacity. In Pakistan, all they are doing with the "new money" is driving up real estate prices. Investment rates are under 20% of GDP and domestic savings rates are even lower. Pakistan, strangely enough for a poor country, is a high consumption society like the US!!!

"That bat say rahna hay
Siraf aaj kaa soochna hay
Kul key kis ko fikar?"

I agree with your observation about the need to raise income tax revenues. Long over due. Less than 1% of the population pays income tax. How long can that continue?

But they also need to rein in unproductive government spending. I am sure everyone has their favorites but defense spending is the least productive form of spending, especially when most of the equipment you buy is imported at very high prices and burdensome interest rates that mortgage the country's future for years to come.

Anyway, that is my take on wrote:

*The growth rate of 8.4% whilst spectacular is clearly unsustainable for any country and would lead to eventual overheating of the economy.

*The 6.5% growth rate predicted for 2006 is still very healthy and should be easier to manage and sustain.

*The key is to keep a grip on inflation, imports and to ensure the infrastructure is developed to keep pace with the growth.

*They also need to tackle the issue of raising income tax receipts urgently. It is a disgrace and a matter of great shame that Pakistan remains a tax-free haven for so many middle and upper class 'citizens' whilst the poor mostly go without life's basic necessities.

Of course, I am no economist and this is just a personal view.

Kind regards,



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