Until 2010, Bangladesh was a laggard in South Asia region. Its per capita income was about half of Pakistan's. Now Bangladesh has surpassed Pakistan as the Pakistani economy has suffered significant slow-down from the previous decade. In fact, the Pakistan economy grew at the slowest rate in South Asia as reflected in per capita incomes. However, the income inequality in Pakistan continues to be the lowest in South Asia. 

Per Capita Income Growth in Pakistan Lags in South Asia. Source: Wo...

Lower income inequality in Pakistan is reflected in its abysmal domestic savings and investment rate of around 10% of GDP. It shows in Pakistan's lower economic growth rate compared to Bangladesh and India. The distribution of national income in a country is a key socioeconomic variable with broad economic and societal implications. Income inequality and wealth inequality are related because the flow of income determines savings and investments, which in turn determine GDP growth and accumulation of wealth. An economic model offered by Galor and Zeira predicts that the effect of rising inequality on GDP per capita is negative in relatively rich countries but positive in poor countries like Pakistan.

Source: The Economist



Investment as Percentage of GDP Source: State Bank of Pakistan 
 
US Aid to Pakistan 2001-2020
While Pakistan's per capita income more than doubled from $500 to $1,000 in the ten years 2000 to 2010, the growth has slowed to less than 30% from 2010 to 2020. Faster GDP growth in the decade of 2000-2010 was partly the result of significant increase in Pakistan's savings and investment rates.  Meanwhile, rising worker remittances from overseas Pakistanis have been boosting Pakistan national savings rate and helping reduce current account deficits
Savings Rate in Pakistan. Source: Dawn

Pakistan also saw rapid economic growth in the 1960s in spite of low domestic savings rate. This can be explained by foreign development aid of as much as 10% of GDP that Pakistan received in that decade.


Foreign Aid to Pakistan as Percent of GDP Source: World Bank


Pakistan's exports doubled from $10 billion to $20 billion in years 2000-2010. In the last decade 2010-2020, the nation's exports have grown only about 25% to $25 billion. Exports have declined in terms of percentage of the country's GDP from 13% to 10% in the most recent decade. . 

Pakistan Exports Since Year 2000. Source: World Bank

 

Return on money invested in Pakistani stock market has also been cut in half in 2010-2020 when compared with the return in 2000-2010.  Shares of companies making up the Karachi Stock Exchange 100 index have returned 8% in US$ terms in 2010-2020, less than half of the 20% during 2000-2010 period. KSE100 still managed to achieve 14% return over the 20-year period from 2001 to 2021, among the highest in the world. 


Stock Market Returns. Source: Tundra 


Foreign direct investment (FDI) in Pakistan ramped up in 2000-2010, reaching the peak of $5.6 billion (3.67% of GDP) in 2007. FDI inflow has since suffered a steep decline.

Foreign Direct Investment in Pakistan. Source: World Bank

Pakistan FDI inflows have significantly lagged behind those of the rest of South Asia.

FDI Inflows in Pakistan. Source: World Bank

Pakistan's manufacturing output tripled from $7 billion in 2000 to $21 billion in 2010. Then it rose just 60% to $34 billion in 2019. The nation's industrial output declined as percentage of GDP from 14% to 12% in the last decade, according to the data from UNIDO, the United Nations Industrial Development Organization. 

Pakistan's Manufacturing Output Trend Since 2000. Source: World Bank

Pakistan's literacy rate has been flat at about 59% in the last decade (2010-2019) after substantial rise from 45% to 55% in the decade of 2000-2010. 

Pakistan Literacy Rate. Source: World Bank

The net primary enrollment rate in Pakistan jumped from 55% in 2000 to 65% in 2010. The progress on this metric slowed as it increased just two percentage points to 67% in 2019. 


Net Primary Enrollment Rate in Pakistan. Source: World Bank

Pakistan has seen a major decline in the rate of human development growth in the country over the last decade. Pakistan saw HDI (Human Development Index) average annual growth of 1.4% in 2000-2009 and 0.80% in 2010-2019, according to Human Development Indices and Indicators 2018 Statistical Update.  The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President Musharraf's rule, according to the latest Human Development Report 2018.

Pakistan Human Development Index Growth Rate. Source: Human Develop...


Bangladesh surpassing Pakistan in socioeconomic indicators has brought into sharp focus the contrast between Pakistan's decades of 2000-2010 and 2010-2020.What changed? The biggest change is Bangladeshi leader Shaikh Hasina's decision to stifle the unruly Opposition and the media to bring political and economic stability to the South Asian nation of 160 million people. It has eliminated a constant sense of crisis and assured investors and businesses of continuity of government policies. With development taking precedence over democracy, Shaikh Hasina followed the example of Asian Tigers  by focusing on export-led economic growth of her country. She incentivized the export-oriented garment industry and invested in human development. Bangladesh now outperforms India and Pakistan in a whole range of socioeconomic indicators: exports, economic growth, infant mortality rate, primary school enrollment, fertility rate and life expectancy.       

South Asian Countries' Export Growth. Source: Wall Street Journal

Bangladesh's garment exports have helped its economy outshine India's and Pakistan's in the last decade. Impressed by Bangladesh's progress, the United Nations’ Committee for Development Policy has recommended that the country be upgraded from least developed category that it has held the last 50 years. 

The next challenge for Bangladesh is to move toward higher-value add manufacturing and exports, as Vietnam has done. Its export industry is still overwhelmingly focused on garment manufacturing. The country’s economic complexity, ranked by Harvard University’s Growth Lab, is 108 out of the 133 countries measured. That is actually lower than it was in 1995, according to the Wall Street Journal

Pakistan Growth By Decades. Source: National Trade and Transport Fa...

 

Vietnam ruled by autocrats is rapidly becoming an Asian Tiger. With rising manufacturing costs in China and the US-China trade war,  many major manufacturers are relocating to other countries in Asia. This situation has helped Vietnam emerge as a hub of foreign direct investment (FDI). FDI flow into the country has averaged more than 6% of GDP, the highest of any emerging economy. The country’s recent economic data shows a rise of 18% in exports, with a 26% jump in computers/components exports and a 63% jump in machinery/accessories exports.  These figures have earned Vietnam the moniker of the newest "Asian Tiger".

Musharraf Years & History of Pakistan's GDP Growth Rates. Sourc... 
 
It was in 2007 that Pakistan caught the "democracy" fever led by the lawless lawyers of Lahore. This led to the return of corrupt dynastic rule of Asif Zardari and then Nawaz Sharif. The year 2007 also marked the beginning of yet another lost decade that saw Pakistan's per capita gdp's continuing lag behind South Asia region and other emerging economies. 
Pakistan was the original "Asian Tiger" back in the 1960s when  other developing Asian economies sought to emulate its development model. It became an export powerhouse in the 1960s when the country's manufactured exports exceeded those of Thailand, Malaysia and Indonesia combined.  The creation of major industrial estates in Karachi under President Ayub Khan's industrial policy incentivized industrial production and exports of value added manufactured products such as textiles. Now the country's industrial output lags its neighbors'. 
History of Pakistan's Manufactured Exports

With Chinese looking to relocate some of their industrial production to low-cost countries, Pakistan has a golden opportunity to grow its industrial output and exports again. Here's Karen Chen explaining why:
“Vietnam is too crowded already and moved into automobiles and electronics. There is no space for investment in Vietnam. Myanmar doesn’t have infrastructure. India is terrible. In Bangladesh you don’t have right conditions for setting up fabric units. So Pakistan is the ideal location for such garment manufacturing because of abundance of cheaper labour. The investment and tax policies for SEZs and new projects are also good. We’ve confidence to be at here.”
Seizing the opportunity to attract export-oriented investors will help Pakistan become the next Asian Asian Tiger economy. It will help the country avoid recurring balance-of-payments crises that have forced the nation to seek IMF bailouts with all their tough conditions. Focusing on "Plug and Play" Special Economic Zones (SEZs) is going to be essential to achieve this objective.

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Comment by Riaz Haq on June 11, 2021 at 8:19pm

#Pakistan earmarks PKR 3.06 tr ($20 billion) for #debt servicing (including interest payments) in the next fiscal year 2021-22, up from Rs 2.94 tr ($18.9 billion) this year. Fed govt allocated Rs 1.6 tr ($10.26 billion) for #foreign debt payments in FY22. https://www.dawn.com/news/1628877

The government has allocated Rs3.060 trillion for debt servicing (including interest payments) in the next fiscal year 2021-22.

During the current fiscal year, Rs2.94tr had been earmarked for the same.

The federal government allocated a sum of Rs1.6tr for foreign loans repayment, short-term loans and other advances in FY22. Rs1.49tr has been allocated for debt servicing in the current fiscal year, however, revised estimates placed it at Rs1.06tr.

Foreign Loans repayment for FY22 will be Rs1.42tr against Rs841 million for the current fiscal year. For short-term foreign credits, Rs74.4bn has been allocated for the next fiscal year. This year, revised estimates for short-term foreign credits are at Rs121.9bn.


According to the Pakistan Economic Survey of 2020-21, total public debt was recorded at Rs38,006bn at end March 2021, registering an increase of Rs1,607bn during first nine months of current fiscal year (9MFY21) which was much less when compared with the increase of Rs2,499bn witnessed during the same period last year.

The increase in total public debt during 9MFY21 was even lower than the federal government borrowing of Rs2,065bn for financing the fiscal deficit. The differential is primarily attributable to appreciation of the Pak rupee against the US dollar by around nine per cent which led to a decrease in the value of external public debt when converted into the local currency.

Debt from multilateral and bilateral sources cumulatively constituted over 80pc of external public debt portfolio at end March 2021. A set of reforms initiated by the government to improve the economy has brought strong support from multilateral development partners during the last two years. This is expected to strengthen confidence and catalyse additional support from development partners’ public debt in the coming years which will also help in reducing the pressure on domestic sources.

Pakistan is availing the G-20 Debt Service Suspension Initiative (DSSI) for a period of 20-months (May 2020-December 2021) which will help defer the debt servicing impact to the tune of around US$3.7bn during this period.

The government remained within the benchmarks and thresholds defined in the Medium-Term Debt Management Strategy (MTDS) at the end of December 2020.

The Economic Survey claims that Pakistan has witnessed one of the smallest increases in its public debt during the Covid-19 pandemic. Global public debt to GDP ratio increased by 13 percentage points – from 84pc in 2019 to 97pc in 2020 – whereas Pakistan’s Debt-to-GDP ratio witnessed a minimal increase of 1.7 percentage points and stood at 87.6pc at end June 2020 compared with 85.9pc at end June 2019.

Interest servicing was recorded at Rs2,104bn during 9MFY21 against the annual budgeted estimate of Rs2,946bn. Domestic interest payments were recorded at Rs1,934bn and constituted around 92pc of total interest servicing during 9MFY21 which is mainly attributable to higher volume of domestic debt in total public debt portfolio.

On a full year basis (2020-21), interest servicing is expected to remain below the budgeted estimates primarily due to extension of DSSI from January to June 2021, appreciation of Pak rupee against the US dollar and lower interest servicing on account of National Sav­ings Schemes due to withdrawals against discontinued prize bonds.

Comment by Riaz Haq on June 24, 2021 at 5:10pm

#Pakistan's public #debt stands at 78% of #GDP. Annual interest payments to use up one-third of the Rs. 8.5 trillion ($54 billion) 2021 federal budget....90% of debt payments are for domestic debt & 10% for foreign debt servicing. #economy #Budget2021 https://asia.nikkei.com/Economy/Interest-payments-consume-one-third...


https://twitter.com/haqsmusings/status/1408212855741030400?s=20


Interest payments consume one-third of Pakistan's budget
Over-reliance on loans bodes ill for fiscal sustainability and domestic needs

https://asia.nikkei.com/Economy/Interest-payments-consume-one-third...

Fiscal sustainability has become a major issue among political and economic analysts after Pakistan revealed early this month that servicing debt accounts for more than one-third of its federal budget.

Finance Minister Shaukat Tareen in the National Assembly on June 12 announced the fiscal 2021 federal budget of 8.48 trillion rupees ($54 billion). Interest payments on debt, which are expected to grow by 3.9% from the ongoing fiscal year, account for 3.06 trillion rupees, or 36% of budget expenditures. In contrast, the government is only spending 600 billion rupees on subsidies and 100 billion rupees for COVID-19 vaccinations and emergencies.

The budget also reveals a deficit of 3.99 trillion rupees. The federal government plans to borrow 3.74 trillion rupees to finance this deficit, which makes up 94% of the deficit.

Pakistan's reliance on debt is a violation of the country's Fiscal Responsibility and Debt Limitation Act 2005, which states that the government must limit debt to 60% of gross domestic product. Currently, the ratio stands at 78% of Pakistan's $303 billion GDP.

Hasaan Khawar, a public policy analyst based in Islamabad, says Pakistan borrows heavily not only to finance current expenditures but also to service existing debt. "Pakistan is a having a primary fiscal deficit. That's why the [International Monetary Fund] has been demanding a primary budget surplus so that it starts reducing debt."

"Resources that could have been spent on essential sectors like health, education or public investment are now being dedicated to interest payments," said Naafey Sardar, a senior research associate at Texas A&M University in the U.S., emphasizing that increased debt financing presents a trade-off for Pakistan. "Since increased public investment and expenditures on education and health are associated with improvements in economic growth, higher debt financing expenditures reflect a missed opportunity," he said.

Of the 3.06 trillion rupees earmarked for interest payments on debt, 2.76 trillion rupees, or 90%, will go toward servicing domestic debt.

A senior official involved with the government's development planning told Nikkei on condition of anonymity that domestic borrowing is unsustainable. "Domestic borrowing is always at high commercial rates and external borrowing is mostly at concessional rates. That's why domestic borrowing costs the economy more," the official said.

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Experts believe that a combination of reduced government spending and a tax increase is the solution.

Sardar believes that the way out is to increase tax revenue. "Higher tax receipts can be earned by increasing the corporate tax rate from 29% to 35%," he said. Sardar added that at a time when corporate profits are surging, increasing corporate taxes could be a viable option.

Khawar believes that Pakistan can accrue surpluses by controlling fiscal waste. He says there is a multipronged strategy to deal with the problem. "Government needs to widen the tax base using technology for tax enforcement while reducing expenditures in loss-making state-owned enterprises," he said. "There is no quick fix to this. That's the bottom line."

Comment by Riaz Haq on October 5, 2021 at 7:54am

Look at the #economic growth trend in #SouthAsia! #Pakistan #economy grew rapidly in 2000-2008 during #Musharraf years!! And then the bottom fell out!!! Bitter fruit of kleptocracy disguised as "democracy"??? #PPP #PMLN #PTI #PandoraPapers https://www.economist.com/asia/2021/10/05/pakistan-got-its-way-in-a...

https://twitter.com/haqsmusings/status/1445398625698336770?s=20

Mr Khan’s current diplomatic offensive comes in the context of the dwindling options bequeathed by his country’s feeble economy, hypocrisy over Xinjiang and long history of double-dealing. “Pakistan is trying to use Afghanistan to rehabilitate itself,” says Michael Kugelman of the Wilson Center, an American think-tank. “Its message is that we were right all along, there never was a military solution, so it is wrong to blame us.” What Pakistan now wants is for other countries to lend a hand, and help shore up the Taliban government as the only way of sustaining regional stability. The trouble is that just as Pakistan’s leaders imagine the country’s strategic significance to have grown because it holds unique influence over the Taliban, the West’s withdrawal has entailed a steep decline in its interest in the region.

Mr Khan may well be right that the best hope for preventing a humanitarian disaster in Afghanistan now, and for keeping a grip on jihadist groups that linger on its blood-soaked soil, is to help the Taliban keep a lid on things. “If Afghanistan destabilises, the spillover effect comes to Pakistan,” says Moeed Yusuf, Mr Khan’s national security adviser. “After Afghanistan we are the biggest victim of the past four decades and we are not interested in going there again.” But coming from a country that has for so long run with the foxes while hunting with the hounds, as Pakistan has, such words carry limited credibility. ■

Comment by Riaz Haq on November 17, 2021 at 9:53am

From Musharraf to the PTI

https://www.thenews.com.pk/print/384431-from-musharraf-to-the-pti


To separate fact from fiction, key economic indicators need to be analysed. Musharraf increased reserves from $1.9 to $11.4 billion. The PPP left $7.2 billion. The PML-N reached a record high of $19.4 billion but ended at $10 billion in FY18. Reserves were $8.3 billion on October 5, 2018. No government could avert the IMF. The PTI may borrow $15 billion.

Musharraf increased the current account deficit from 0.7 percent of GDP to 4.2 percent. The PPP reduced it drastically from 8.2 percent to 1.1 percent. The PML-N ended at 5.8 percent ($18 billion) in FY18. In July 2018 it was 8.3 percent ($2.2 billion) and in August 2.3 percent ($0.6 billion) – a big drop. The dollar-rupee rate increased from 52 to 61, a 17 percent increase when Musharraf left. The PPP increased it by 61 percent to 98. The PML-N increased it by 24 percent to 121. In October 2018, it is 133.

Musharraf increased trade deficit from 2.1 percent of GDP to 8.9 percent. The PPP maintained it at 8.9 percent. The PML-N ended at 9.9 percent ($31 billion). In July 2018 it was 13.6 percent ($3.5 billion) and in Aug 9.2 percent ($2.4 billion). Exports reached a high of 13.5 percent of GDP during Musharraf’s period but ended at 11 percent. The PPP remained at 10.6 percent while the PML-N managed 7.9 percent ($25 billion). In August 2018 it was 8 percent ($2 billion).

Exports are limited to textiles (55 percent) and rice (8 percent). Dawood Razak’s target is $25 billion. Imports rose from 15 percent to 20 percent of GDP during Musharraf’s government. The PPP reduced them to 19.4 percent and the PML-N reduced it further to 18 percent ($56 billion). In August 2018 it was 17.3 percent ($4.5 billion).

Remittances were $5.5 billion in Musharraf’s term. They increased to $14 billion in the PPP’s time and $20 billion in the PML-N’s. Remittances growth dropped drastically to one percent in FY18 from double digits. Imran Khan’s target of $40 billion seems unrealistic. FDI increased from $120 million to $5 billion during Musharraf’s term. In the PPP’s time it dropped to $1.3 billion and in the PML-N’s to $2.8 billion. Pakistan’s Doing Business ranking dropped from 76th in 2007 to 147th in 2017. KSE100 Index has dropped 11.6 percent since August 20 this year. The PTI will need to address the prevailing economic and political uncertainty.

Musharraf increased GDP to 5.5 percent peaking at 9 percent. In FY09 it dropped it to 0.4 percent but the PPP ended with 3.7 percent. The PML-N managed 5.8 percent. The IMF has dampened the PTI’s grand plans with a growth rate of 3 percent, policy rate at 15 percent and inflation at 14 percent. Musharraf reduced the budget deficit from 4.9 percent to 4.1 percent of GDP. The PPP increased it from 7.3 percent to 8.2 percent. The PML-N ended at 6.6 percent (legal limit 4 percent) and borrowed Rs2,260 billion in FY18.

During Musharraf’s period, government expenditure financed through borrowing was 22 percent, PPP 36 percent, PML-N 27 percent. The tax-to-GDP ratio declined from 9.5 percent during Musharraf’s period to 8.7 percent in the PPP’s time. The PML-N increased it to 11.2 percent (Rs3,842 billion). The IMF has proposed 15 percent, a daunting task. Agriculture – with 19 percent share in GDP – contributes only one percent to taxes.

Gross public debt during Musharraf’s time dropped from 79 percent of GDP (Rs3,018 billion) to 53 percent (Rs4,846 billion) in FY07. The PPP increased it from 58 percent (Rs6,128 billion) to 64 percent (Rs14,292 billion) in FY13. The PML-N reached 73 percent (Rs24,952 billion).

PSE debt was Rs220 billion in June 2007 (16 percent of total). The PPP added Rs276 billion (20 percent), while the PML-N increased it by Rs898 billion (64 percent) to end at Rs1,393 billion.

Comment by Riaz Haq on November 17, 2021 at 9:54am

From Musharraf to the PTI

https://www.thenews.com.pk/print/384431-from-musharraf-to-the-pti

The IMF recommends privatisation. PIA’s accumulated losses from 1998 to 2007 were Rs23 billion (6 percent). The PPP added Rs119 billion (33 percent) while the PML-N added Rs222 billion (61 percent) to end at about Rs364 billion. It is difficult to imagine PIA competing with Gulf airlines. Steel Mills profit were Rs9.5 billion during Musharraf’s time. The PPP recorded a loss of Rs119 billion; the PML-N increased it by Rs81 billion to Rs200 billion.

Oil prices increased from $25 in Dec 1999 per barrel to $90 by Dec 2007 (313 percent increase) during Musharraf’s period. The PPP faced over $90 in their term. The average in the PML-N’s time was $55. The PTI started at $73 but is now faced with $85. Gasoline’s average price increased from Rs26/litre to Rs56 (115 percent increase) during Musharraf’s period. The PPP increased it to Rs101 (80 percent) but the PML-N decreased it to Rs78 (-23 percent). In October this year, it increased to Rs93 (19 percent).

The total installed capacity increased to 29,573 MW by February 2017. In this, Musharraf’s contribution is 16 percent, PPP 28 percent and PML-N 56 percent. Considering the last four years of each government, Musharraf’s contribution was 30 percent, PPP 32 percent and PML-N 38 percent in electricity generation. In 2006, the circular debt was Rs87 billion. In August 2018, it was Rs1,200 billion. Musharraf added Rs145 billion (12.6 percent), PPP Rs727 billion (63.2 percent) and PML-N Rs279 billion (24.2 percent). No government has found a solution.

There is no doubt that the economy has been mismanaged. Past governments have been facing similar economic circumstances and governance realities as the PTI, whose main problem is tackling the expectations of its voters. International agencies are also culprits of the mess due to their propensity to provide loans for perpetuating poor governance and corruption. After signing the agreement with the IMF, the PTI’s 100-day agenda and election promises will be compromised. The new captain, the IMF, will carry out a heart transplant as it is not satisfied with Asad Umar’s bypass. ‘IMF ka Pakistan’ will replace ‘Naya Pakistan’.

The writer is a former member of the National Reconstruction Bureau.

Comment by Riaz Haq on November 17, 2021 at 9:54am

Pakistan textile boom


https://www.thenews.com.pk/print/907972-rising-exports-set-to-spur-...

Officials said the sector invested $3-3.5 billion on modernisation and expansion in the last few years and the investment is likely to match $5 billion, witnessed during Musharraf era when the sector was undergoing major modernisation, balancing and replacement (BMR).

“The figures can be matched in next six to eight months provided the government provides the sector level-playing field”, Zubair Motiwala, a leading textile industrialist told The News International.

Exports of various categories of value-added textile goods went up substantially in July-October period of this financial year compared to the corresponding period of previous year, as per latest figures released by Ministry of Commerce.

Exports of men’s garments jumped by a massive 32 percent to $1.584 billion in the months under review compared to $1.201 billion in the same period last year.

Home textile exports grew 22 percent to $1.575 billion in July-October of 2021-22 against $1.294 billion in the same months a year ago.

Exports of cotton fabric increased 20 percent to $745 million in first four months of current fiscal compared to $622 million in the same months of last fiscal.

Likewise, exports of jerseys and cardigans soared 60 percent and women’s garments increased 20 percent in the period under review compared to same months during the last fiscal.

Motiwala attributed the growth in value-added textile exports to global Covid lockdowns when India was closed and orders were diverted to Pakistan.

Similarly, buyers also moved to Pakistan after being dismayed by Bangladesh child labour issues.

“Buyers do not change their suppliers swiftly. Luckily, Pakistan captured these buyers in Covid times and it is very hard for them to again switch to new suppliers,” said Motiwala.

He pointed out that export figures of value-added textile goods would have been much bigger if the shipping charges had not been raised massively in recent times.

“Textile sector only wants even-playing field from the government in the form of continuous supply of gas to the sector as disruption will pose serious threat to the sector, which is presently buoyant by registering the much-needed growth for the country.”

He said more investment in the import of machinery for textile sector expansion and modernisation would boost sector’s prospects in terms of high growth in exports.

“We believe that $5 billion investment in Musharraf era would be matched in next six to eight months as the sector has invested $5 billion so far,” Motiwala hoped.

Comment by Riaz Haq on January 31, 2022 at 11:25am

3 Myths About ‘Un-Governable’ Pakistan
Pakistan needs to be saved from those that rule it, and especially from those want to rule it forever.

By Hussain Nadim

https://thediplomat.com/2022/01/3-myths-about-un-governable-pakistan/


Calls to improve Pakistan’s image from that of a weak economy with rising extremism and corruption to a stable, internationally responsible and progressive nation are often raised in the country’s policy making circles. However, what is conveniently ignored is that Pakistan’s ruling elite has coproduced this fragility/failed state narrative to perpetuate its hold over power. Having worked in the Pakistani policy sector for over a decade, I would like to dispel three deeply-imbedded myths about Pakistan, specific to governance.

Myth #1: Pakistan is Impossible to Govern:

For decades, Pakistan’s ruling elite has justified its poor performance by claiming that it is a country that is hard to govern and whose people are “jaahil” (savages). “It is not us but you,” is the message that the ruling elite has fed the public and also transmitted to foreign countries about Pakistan to achieve short-term personal objectives over long-term national goals. After the Cold War, this messaging included a new line of narrative, pitching Pakistan as a country with a deep level of Islamist extremism that only the “moderate minded” ruling elite could help keep at bay.

The truth is that Pakistanis are easy to govern, they have very basic demands. You cut the gas, they turn to using wood. You cut electricity, they sleep on rooftops. They have little expectations from the government beyond the primitive life needs.

As for extremism, it is less to do with Islam or the public at large and more to do with how the ruling elite sowed and cultivated the seeds of religious and ethnic extremism to pursue its domestic political and geopolitical interests, especially during the Cold War.

The Pakistani ruling elite adopted a fear-based governance model instead of a rule of law-based governance. This facilitated the flow of foreign funds into the country and secured international political support to its supposedly “liberal minded” rulers so they may “de-radicalize” the “extremist” masses.

The latest in the line of fear-based and victim-driven narrative is pitching the 140-million strong youth of the country as a “ticking time-bomb,” instead of presenting them as a game-changer to the global community in the digitalized world.

Pakistan is neither an impossible country to govern nor are the people inherently extremist. It is those in power that have hijacked the system for decades and have forced a functioning country into a dysfunctional state, keeping it deliberately on a brink of failure. It is this state of brink that creates a hyper sense of fear and victimhood, providing the ruling elite leverage with actors at home and abroad.

Myth #2: It is the Incompetence:

There is only so much that the ruling elite can blame Pakistan or its people for being hard to govern, especially 70 years after it emerged an independent country. Incompetence is simply a narrative to mask and perpetuate deep corruption.

The incompetence myth played well, both at home and abroad. It has convinced the public at home and the foreign audience that a moderate/liberal minded incompetent government is better than a worst-case scenario of an Iran like “Islamist takeover” of the country. But this begs a question; how is it that the same ruling elite that is so incompetent in governance of the state is internationally competent when it comes to its private businesses?

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Myth #3: The System is Complicated and Broken:

The ruling elite also uses the myth of a dysfunctional and broken system to continue its power grab on the state. The narrative on “broken system” helps the ruling elite buy sympathy and time from the public to undertake the pipedream of “reforms” and also touches the right chords with foreign powers to secure technical assistance in capacity building projects and development aid.

Comment by Riaz Haq on March 24, 2022 at 11:58am

Arab News Pakistan
@arabnewspk
#OPINION: Over the last three years, #Pakistan’s savings rate has improved from a low of 5.4 percent to 19.9 percent since 2020-- all helped by a robust growth in remittances and a deepening financial system, writes
@javedhassan

https://www.arabnews.pk/node/2049801


Riaz Haq
@haqsmusings
·
57m
Nearly 4X increase in #Pakistan’s #savings rate in past 3 years is very welcome news for the country’s #economic growth! Savings are extremely important for increased #investment to spur #gdp growth in any country, including Pakistan.

https://twitter.com/haqsmusings/status/1507052389856993308?s=20&...

Over the last two decades, Pakistan has not only experienced a chronically low gross domestic savings rate but has also seen the savings rate decline until recently. According to data from the World Bank, the gross domestic saving rates fell from 16.4 percent in 2000 to just 5.4 percent in 2019. Pakistan’s savings rate compares unfavorably with East Asian countries and South Asian peers. Bangladesh and India have seen their savings rates increase over the same period, which in 2019 stood at 25 percent and 28.2 percent respectively.

Several studies show the relationship between the savings rate and economic growth, especially in developing countries. Economist Robert Solow first argued that larger savings result in higher investments and increased production (Quarterly Journal of Economics, 1956). Other economists such as McKinnon (Money and capital in economic development, 1973) and Shaw (Financial deepening in economic development, 1973) further emphasized the causative relationship between savings and economic development. Empirical evidence shows that as income increases with higher economic growth, it tends to also boost capital accumulation. Such favorable conditions help create a virtuous cycle of further investment and accelerating economic growth.
However, it is not always easy to identify the determinants of a society’s savings propensity. The collective spending behavior of households and public and private entities is subject to several interdependent social and economic factors. Literature suggests that a major factor of savings rates is the level of financial deepening in a society, that is, inter alia, the percentage of the population holding bank accounts, the development of financial markets and the diversity in financial instruments available.

Other factors influencing the savings propensity include culture, religion, and demographic factors such as the labour force participation rate and dependency ratio. Pakistan’s high fertility rate and burgeoning dependent youth population does not encourage household savings. The interplay of disparate factors is not always obvious, and yet often converge to affect the direction of the national savings rate. There is a consensus that people with high levels of income have a greater propensity to save and vice versa. However, for this to be sustainable, the growth should be through productivity gains and not consumption driven that is fuelled by external borrowings. If higher incomes do not result in investments in productive capacity, then the long-term savings rate is unlikely to improve and may even decline.

That has been the case with Pakistan where the economy expanded despite relatively low and declining domestic savings rates between 2000 and 2019. Such a growth model was unsustainable because the savings-investment gap was filled by foreign funding, primarily in the form of borrowings. More perversely, the economic growth was largely consumption-driven and masked the structural issue of low savings rate. It has led the country closer than ever to a foreign debt trap where the bulk of new external funding is not deployed in productive capacity but rather to service old foreign debts.

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