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Home > Blogs > Anthony Harrington > Pakistan - the glass half full, or more than a bit empty?

Pakistan - the glass half full, or more than a bit empty?

Pakistan - the glass half full, or more than a bit empty? Anthony Harrington

Comparisons between India and Pakistan do the latter few favors, although with the two countries constantly squaring off over issues like Kashmir, making such comparisons is a bit like waving a match in a dynamite factory. The day before this blog was penned, Indian troops shot and killed a Pakistani soldier who had accidentally crossed the line of control that separates the Indian and Pakistani sides of the Kashmir region. That this is a pointless and stupid conflict, as well as one that two regional neighbors can ill afford, is glaringly apparent to everyone except the two countries involved. The military on both sides seem rather fond of the opportunity Kashmir affords their officer classes to swagger a little and the fact that the region has already served as cause for two of the three wars fought between the two countries doesn't seem to detract much from their fun.

Pakistan, can, of course, afford this distraction considerably less than it's wealthier neighbor. The latest IMF report on state of the country's economy is more a D minus than a B plus

"Pakistan’s economy faces many challenges. Deep seated structural problems and weak macroeconomic policies have continued to sap the economy’s vigor. Real GDP growth over the past four years has averaged only about 3% annually, and is projected to be about 3¼% in 2012/13,2 insufficient to achieve significant improvement in living standards and to absorb the rising labor force. A key structural impediment to growth is the problems in the energy sector, which have resulted in widespread and unpredictable power outages. Headline inflation has decelerated recently, but is likely to return to low double digits by the end of 2012/13. The external position has weakened substantially, as export growth turned negative in 2011/12 while imports grew. The financial account has also deteriorated, reflecting weak financial inflows and debt repayments."

The summary is even more succinct, with the IMF virtually shouting "Gees, people! Get your act together!"

"Directors noted that while some progress has been made, Pakistan continues to face difficult macroeconomic challenges as growth remains insufficient, underlying inflation is high, and the external position is weakening. The situation is compounded by an uncertain global environment and a difficult domestic situation, as well as adverse effects of natural disasters. Directors emphasized that strong policy measures and deeper reforms are critical to addressing vulnerabilities, boosting sustainable growth, and reducing poverty."

In other words, the problems and the solutions for Pakistan lie almost wholly in the political realm, and as the European Union continues to demonstrate in spades, politicians make damn bad economists. So discovering that the economic fate of the country is intrinsically bound up with a bunch of squabbling career politicians is not good, and becomes even worse when you add brooding fundamentalism into the equation. However, while those outside Pakistan have a tendency to shake their heads gloomily over the country's prospects, as Pakistan's Finance Minister Hafeez Sheikh pointed out when presenting the Budget for 2013, there are plenty of positives to be found. One only has to look at where Pakistan stood in 2008 to find some light at the end of the tunnel. Here is Hafeez's summary of the bleak place Pakistan occupied in 2008, at the point at which the country became a democracy for the first time:

"As a nation, we have managed the challenges of an inherited economic crisis, regional conflict, global turmoil, and the great floods of 2010 – this shows the resilience of the Pakistani nation. It’s a testimony to the will of our people to overcome adversity and realize their destiny ... It is important that we realize the economic situation that this government inherited, when the people entrusted them with this responsibility in 2008:

  1. Real GDP growth had slowed down;
  2. Headline CPI 12-month inflation had been rising since 2006 and peaked at 25% in October 2008;
  3. External current account deficit 8½% of GDP
  4. Fiscal deficit rose to 7.6%
  5. Gross reserves declined from $16 billion to $6 billion.
  6. Karachi KSE-100 index dropped by one third, prompting exchange authorities to close down the market.

Pakistan's economy might not be in glorious shape today, but it is in considerably better shape now than it was then, was the real message behind Sheik's speech. In 2011 exports increased by 28.4% to US$25.4 billion. More money is flowing to the provinces from the center, driving a host of improvements out to the grass roots. All these things suggest that while Pakistan may have huge challenges in front of it - and indeed, may yet implode into something very like a failed state - much progress has already been made. This really is a country in great need of good politicians intent on pushing forward on the key fronts of law and order, the economy, education and health. The next ten years will be key.

Further reading on Pakistan and Asia:




Tags: European Union , fundamentalism , Hafeez Sheikh , IMF , Pakistan
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