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Numbers don't lie. Look at the GDP graph; in nominal terms, it changed gears in FY02 and the turbo is on since then - It grew from $78 billion in FY02 to reach $284 billion in FY16. PwC predicts it to reach $776 billion by 2030. And the future number is not coming out of the blue. If the economy continues to grow at CAGR of 6.7 percent for past fifteen years till 2030, nominal GDP will cross the $700 billion mark.


What is driving this growth? There was an economic recession in between (2008) but that could not stop nominal economic growth. The shift in demand pattern of middle and upper middle class is observed in the period, both in urban and rural economies.

The country has long relied on textile for its production, employment generation and foreign exchange earnings. The sector is moving up a ladder on value addition - branding is the new craze amongst Pakistani textile players. Numerous brands exist and are growing at a decent pace within country, with a couple of brands moving to international arena. This is leading to mega mall culture in Pakistan. Can these brands, once established at home, generate export surplus from markets like South Asia, Middle East and Africa?


Pakistan used to assemble 200k motorbikes a year in 2002 and today that number is close to 2 million. Is a similar disruption in passenger cars in the offing? With three new assemblers coming in, the annual cars sale is expected to double to 500K mark over the next few years. How many mass transit systems the cities would have in five years?

There is a huge gap of affordable housing. Although, the construction sector is booming primarily backed by government infrastructure spending; is there a boom in housing on cards? There are policy level gaps which are required to fill including clear property rights and innovative REITS products to unlock real estate development potential. The mortgage financing is too low and at very high rates.  Are government and regulatory bodies ready to make market oriented policies? Can we take our cement industry to generate sizable export surplus?

Can we move the ladder on agriculture value add? Will warehouse receipts system be a norm in the sector in a decade to bring efficiencies?  The issue is not confined to food security; but the need of the hour is to look for earning foreign exchange from a large agri base.

The GDP per capita also moved in tandem to nominal GDP - it is up from $546 (FY02) to $1,465 in FY16. Assuming, population continues to grow at 2 percent, the GDP per capita will cross $2,000 mark in FY23 and will reach $2,762 in FY30. These are the levels that can cause demand disruption. Economists and business analysts argue that a shift in demand takes place once the economy goes through the tipping point or range that our economy is passing through.

There is a fair chance of economy to keep on growing and demand disruption to take place. But the question is what is driving that growth? Would it be sustainable? Where is the investment to match the demand? The investment to GDP ratio is falling which is partially explained by too high GDP growth - it averaged at 17.3 percent of GDP since 1960 and the last five years average is at 14.9 percent. There are talks, MOUs, a few firm commitments, and of course euphoria of CPEC here and there. But where is the actual investment? Why is it not depicting in numbers?

Pakistan is primarily a consumption based economy. According to GDP by expenditure at market price, consumption averaged at 88.3 percent of GDP since 1960 and currently it is at 91.9 percent. Now see the graph, the consumption has curved up since FY04, and initially investment went up in tandem but the latter dipped after 2008 crisis.

Thus, the balance of payment crisis in 2008 hurt investment but not consumption. Lately, the growth in consumption is primarily relying on foreign elements. Mostly it was home remittances which were 7 percent of GDP last year.  Will remittances continue to grow to match consumptions growth?

The answer is no, based on the current model. The need is to work on developing value added services skill set from basic labor to market oriented skill sets. Why cannot Pakistani people compete with Asians or East Europeans in services industry in the Middle East like high end retailing? The need is to develop soft skills and mannerism amongst masses. Can we produce labour for precision engineering? Can we transfer adhoc tech freelancing into a meaningful industry to mimic Bangalore IT hub?

These are a few areas where the focus of policymakers should be to reap benefit from upbeat nominal economic growth. The point is that in the absence of requisite domestic savings and investments, funds have to flow in the country from abroad to feed the consumer demand. There are no two ways to it - all policy makers should do is to work on non-debt flows such as exports, remittances and FDI. Else the debt would keep on pilling and the land of pure will keep on running on heavenly support.

Copyright Business Recorder, 2017


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