Plain Truths About the Economy

By Anjum Altaf

Every so often someone promises to turn Pakistan into an Asian tiger. It is not a bad ambition but it hasn’t happened yet. Not just that, we don’t seem to be moving forward much. All the more reason for an honest examination because knowing where one is starting from is just as important as knowing where one wants to go.

With help of some illustrative numbers one can establish three points. The Pakistani economy is existing at a low level; it is in relative decline; and too many of its citizens are struggling at or below subsistence level. Getting from here to Asian tiger status would require something beyond more of the same.

First, the state of the economy. The Federal Bureau of Statistics website shows that in 2015 per capita income in current prices was Rs. 153,620 per year or about Rs. 13,000 per month (in round numbers) which is also the current minimum wage. This means that if Pakistan’s total yearly income was divided equally among its citizens, each person would get Rs. 13,000 per month – a household of four would have around Rs. 50,000 a month to live on. Add up essential household expenditures and it is obvious this is a survival-level allocation implying that the Pakistani economy in aggregate is a survival-level economy for its citizens.

Easily available data allows for comparisons with Malaysia, an Asian tiger cub, and South Korea, an Asian tiger. Adjusting for purchasing power, the respective yearly income per person in the two countries is five and seven times that of Pakistan. In other words, instead of Rs. 50,000 a Pakistani household of four would require Rs.2.5 lakh or 3.5 lakh per month to attain the average standard of living in Malaysia or South Korea. That is the difference between a survival economy and a prospering one. No wonder people would like to leave Pakistan to work in Malaysia but none would want to migrate in the other direction.

To achieve the status of an Asian tiger like South Korea, Pakistan’s income per person needs to multiply seven times. How long would that take? Even if the economic rate of growth increases from the existing 5% to 7% and is sustained year after year, it would take over 25 years to reach where South Korea is today. Getting there in 15 years would require a growth rate of 12% which is way beyond anything Pakistan has ever achieved.

Second, while the Pakistani economy is growing, it is declining relative to most other developing economies. In 1990, India’s per capita income was 40% lower than that of Pakistan; by 2009 it had drawn level; today, it is around 20% higher. China’s per capita income in 1990 was 50% less than Pakistan’s; today it is 200% higher. At these relative rates, far from becoming an Asian tiger Pakistan will soon be relegated to the status of an also-ran.

Third, if income were equally shared and every individual received a monthly amount of Rs. 13,000 the reality of the survival economy would be inescapable. It is masked by the illusion of opulence created by a highly unequal income distribution – so unequal that half the total national income goes to just the richest 20% of households.  A recent news report discussing salaries of bank CEOs revealed that Rs. 50 lakhs per month was not an outlier. With some individuals living at first world elite levels, it follows there must be others living below the average in order to keep the total income constant. In fact, the majority of individuals in Pakistan have monthly allocations well below the survival level of Rs. 13,000.

Given the extreme inequality, independent estimates suggest that over half the individuals in the country could be classified as vulnerable in the sense that any unforeseen expense can plunge them into poverty. Thus not only is the Pakistani economy a low-level economy in the aggregate, the majority of its citizens are living at well below an acceptable survival income, in fact in various degrees of deprivation.

How do individuals exist at this level of deprivation? By being poorly educated, in fragile health, increasingly indebted, and overworked because of dependence on multiple jobs. Care to follow the story of someone earning the minimum monthly wage of Rs. 13,000 and you will appreciate the real state of the Pakistani economy. Given this human capital, how do its leaders propose to turn Pakistan into an Asian tiger in our lifetimes?

Understanding our existing predicament raises the real question: How did Pakistan get left behind in this impoverished state? Obviously it is not Pakistan’s fault – nothing says this was its fated destiny – but that of those occupying the driver’s seat all these years. How come China and India starting way behind have overtaken the Pakistani economy and moved so far ahead all in a matter of a few decades? Or how a small country like South Korea became so prosperous with limited natural resources? How come Malaysia has leveraged its strategic location and managed its ethnic diversity while Pakistan has not?

As we move into the election cycle we should be asking political parties some tough questions about their visions and development plans. We should not be fobbed off with easy answers. Corruption is not a good enough reason; it exists everywhere and the sizes of scams are in fact much greater in India. Overpopulation is also an unconvincing explanation given that both China and India are six times more populous. We should also not be distracted by the promise of CPEC. Even if it comes off perfectly it will add at best another 2.5% to the rate of growth of national income without any accompanying reforms of a fundamental nature.

Pakistan’s predicament is clearly related to some very poor policy choices, badly misplaced priorities and shockingly abysmal governance. We can infer some of these from the comparative experience of China which trailed us less than three decades back and is now so far ahead that we look upon it as a saviour. Such an exploration would be the subject of a subsequent article.

This opinion appeared in Dawn on July 25, 2017 and is reproduced here with the author’s permission. The writer would like to thank the following colleagues and students for very valuable suggestions on a number of early drafts: Dr. Ali Cheema, Dr. Farrukh Iqbal, Dr. Ijaz Nabi, Dr. Nadeem ul Haque, Dr. Anupam Khanna, Mr. Shahid Mehmood, Mr. Faizaan Qayyum and Ms. Marwah Maqbool. Any residual errors are the responsibility of the author.

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Tags: Asian Tiger, China, Development, Economy, India, Pakistan