Growth of provincial economies

31 Aug, 2021

The previous two articles had presented estimates of the size of the four provincial economies and the economic structure of these economies respectively. This article gives estimates of the growth rate in the Gross Regional Product (GRP) of the four provincial economies in the tenure of different Governments from 1999-2000 to 2018-19.

The analysis is useful in highlighting the two-way relationship between the growth of the national GDP and provincial GRPs. This depends on which sector leads the process of growth during a particular period. If agriculture, especially major crops, perform well in a particular year it disproportionately benefits Punjab. Alternatively, if industry, particularly manufacturing, shows faster growth then Sindh is likely to witness higher increase in the GRP growth rate. If services perform well, then this has a broader regional impact on the growth process in the country. Therefore, the sectoral policy regimes have a differential impact on the provincial economies.

The period wise GRP growth rates are presented in Table 1.

===============================================================================Table 1===============================================================================GRP Growth Rates of the Provinces in different periods (%)===============================================================================                        1999-2000        2997-08         2012-13                               to             to              to                          2007-08        2012-13         2017-18        2018-19===============================================================================PUNJAB                        4.7            3.0             4.5            2.3SINDH                         6.0            2.0             4.6            0.5KHYBER-PAKHTUNKHWA            5.3            4.8             4.9            3.4BALOCHISTAN                   3.1            1.8             3.9            2.0PAKISTAN                      5.1            2.8             4.5            2.1===============================================================================

During the Musharraf era, the growth momentum of the economy increased from 2003-04 onwards. The average growth rate of the manufacturing sector was exceptionally high at over 10 percent. Consequently, from 1999-2000 to 2007-08, the national economy achieved a growth rate above 5 percent. It is not surprising that during these years, Sindh was the most buoyant economy with a growth rate of 6 percent.

The performance of agriculture was close to the average historical performance with a growth rate of just under 3 percent during this period. This meant that the economy of Punjab was likely to show a moderate growth rate. It was 4.7 percent, somewhat below the national average. The economy of Khyber-Pakhtunkhwa was beginning to acquire some momentum after 9/11 with growth in remittances and rise in traffic volumes due to NATO supply movement and growing transit trade. Balochistan was experiencing constraints to its growth, with a relatively low growth rate close to 3 percent.

The years, 2007-08 to 2012-13, witnessed a peak in power load-shedding and in acts of terrorism. The price of oil rose above $100 per barrel and the rate of inflation remained double-digit throughout these years. There were also devastating floods in 2009-10 which led to a big loss of agricultural output. Consequently, the average GDP growth rate fell to below 3 percent.

All provinces suffered in varying degrees due to the negative impact of these factors. Sindh was badly hit especially by multiple acts of terrorism in Karachi and the growth rate fell from 6 to 2 percent. Balochistan was the worst affected by power outages and achieved a growth rate of only 1.8 percent.

The variation in the growth rates of the provincial economies has decreased from 2007-08 onwards. Khyber-Pakhtunkhwa has sustained a relatively high growth rate and remained the fastest growing economy up to 2018-19. The gap between the growth rate of the economies of Balochistan and the country narrowed after 2012-13. This was, of course, partly due to the fiscal equalization achieved in the 7th NFC Award which led to a big increase in transfers to the province and enabled a fiscal stimulus to be provided to growth.

Both Punjab and Sindh showed growth rates close to the national average during a period of moderate growth in the tenure of the PML (N) government. Punjab was able to raise in a big way its development spending in this period.

The long-term performance from 1999-2000 to 2018-19 of each provincial economy is shown in Table 2 in terms of the growth in real per capita GRP.

========================================================================Table 2========================================================================Long-Term Growth Rate of GRP and of Real Per Capita of Provinces1999-2000 to 2018-19========================================================================                                                                     (%)========================================================================                               GRP        Population      Per Capita GRP========================================================================PUNJAB                         4.1               2.1                 2.0SINDH                          4.3               2.4                 1.9KHYBER-PAKHTUNKHWA             5.0               2.8                 2.2BALOCHISTAN                    2.9               3.2                -0.3PAKISTAN                       4.2               2.4                 1.8========================================================================

The numbers in Table 2 are very revealing. The three Provinces of Punjab, Sindh and Khyber Pakhtunkhwa have achieved a growth rate in real per capita GRP of close to 2 percent since 1999-2000. Punjab and Sindh had somewhat lower GRP growth rate but the rate of population growth has also been smaller.

Khyber Pakhtunkhwa has performed relatively well and is the only province to have achieved a long-term GRP growth rate of 5 percent. However, the faster population growth has reduced the growth in per capita GRP. Unfortunately, the province of Balochistan has remained a straggler with a long-term GRP growth rate of under 3 percent. The result is that with the fastest population growth rate it has witnessed a fall in real per capita GRP from 1999-2000 to 2018-19.

The fall in real per GRP of Balochistan is a matter of great concern. Examination of the sub-sectoral trends reveals that output in fishing, forestry, mining (especially natural gas), manufacturing, transport, finance and insurance and private services has been falling or has shown little growth. Special measures will be needed to revive these sectors and promote the overall process of growth in Balochistan by removing constraints by supplying more water for agriculture, development of highways and a process of selecting regionally dispersed growth settlements with full access to services in the face of a low population density. Hopefully, the development of Gwadar Port and location of industry in the SEZs in Hub and Lasbela in close proximity to Karachi and Gwadar ports will raise substantially the growth momentum in the province.

There is need to reiterate that the success of the Federation of Pakistan, especially after the 18th Amendment and the 7th NFC Award, hinges on a process of reduction in regional disparities in the country. The Council of Common Interests must play a key role in monitoring and ensuring that this happens. Special initiatives on the development front will need to be undertaken to accelerate the process of growth in Balochistan and to sustain the growth momentum of Khyber-Pakhtunkhwa, which may be adversely affected by the recent developments in Afghanistan.

(The writer is Professor Emeritus at BNU and former Federal Minister)

Copyright Business Recorder, 2021

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