Table of Contents

Economic Growth of Pakistan .............................................................................1

1. Introduction .........................................................................................................1

2. Analysis...............................................................................................................3

a. Factors ..............................................................................................................5

b. Growth .............................................................................................................8

3. Conclusion ........................................................................................................10

4. References .........................................................................................................11
 Economic Growth of Pakistan

1. Introduction
The economy of Pakistan is the 25th largest in the world in terms of purchasing power
parity (PPP), and 42nd largest in terms of nominal gross domestic product. Pakistan has a
population of over 207 million (the world's 5th-largest), giving it a nominal GDP per capita of
$1,641 in 2018, which ranks 147th in the world and giving it s PPP GDP per capita of 5,709 in
2018, which ranks 130th in the world for 2018. However, Pakistan's undocumented economy is
estimated to be 36% of its overall economy, which is not taken into consideration when
calculating per capita income. Pakistan is a developing country and is one of the Next
Eleven countries identified by Jim O'Neill in a research paper as having a high potential of
becoming, along with the BRICS countries, among the world's largest economies in the 21st
century. The economy is semi-industrialized, with centres of growth along the Indus River.
Primary export commodities include textiles, leather goods, sports goods, chemicals, carpets/rugs
and medical instruments.

Growth poles of Pakistan's economy are situated along the Indus River; the diversified
economies of Karachi and major urban centers in the Punjab, coexisting with lesser developed
areas in other parts of the country. The economy has suffered in the past from internal political
disputes, a fast-growing population, mixed levels of foreign investment. Foreign exchange
reserves are bolstered by steady worker remittances, but a growing current account deficit –
driven by a widening trade gap as import growth outstrips export expansion – could draw down
reserves and dampen GDP growth in the medium term. Pakistan is currently undergoing a
process of economic liberalization, including privatization of all government corporations, aimed
to attract foreign investment and decrease budget deficit. In October 2016, foreign currency
reserves crossed $24.0 billion which has led to stable outlook on the long-term rating
by Standard & Poor's. In 2016, BMI Research report named Pakistan as one of the ten emerging
economies with a particular focus on its manufacturing hub.

In October 2016, the IMF chief Christine Lagarde confirmed her economic assessment in
Islamabad that Pakistan's economy was 'out of crisis' The World Bank predicts that by 2018,

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Pakistan's economic growth will increase to a "robust" 5.4% due to greater inflow of foreign
investment, namely from the China-Pakistan Economic Corridor. According to the World Bank,
poverty in Pakistan fell from 64.3% in 2002 to 29.5% in 2014. Pakistan's fiscal position
continues to improve as the budget deficit has fallen from 6.4% in 2013 to 4.3% in 2016. The
country's improving macroeconomic position has led to Moody's upgrading Pakistan's debt
outlook to "stable".

In 2017, Pakistan's GDP in terms of purchasing power parity crossed $1 trillion. The gross
domestic product (GDP) or gross domestic income (GDI) is one of the measures of national
income and output for a given country's economy. GDP can be defined in three ways, all of
which are conceptually identical. First, it is equal to the total expenditures for all final goods and
services produced within the country in a stipulated period of time (usually a 365-day year).
Second, it is equal to the sum of the value added at every stage of production (the intermediate
stages) by all the industries within a country, plus taxes less subsidies on products, in
the period. Third, it is equal to the sum of the income generated by production in the country in
the period—that is, compensation of employees, taxes on production and imports less subsidies,
and gross operating surplus (orprofits).

The Gross Domestic Product (GDP) in Pakistan was worth 211.09 billion US dollars in 2011,
according to a report published by the World Bank. The GDP value of Pakistan is roughly
equivalent to 0.34 percent of the world economy. GDP in Pakistan is reported by the World Bank
Group. Historically, from 1960 until 2011, Pakistan GDP averaged 48.8 USD Billion reaching an
all time high of 211.1 USD Billion in December of 2011 and a record low of 3.7 USD Billion in
December of 1960. The gross domestic product (GDP) measures of national income and output
for a given country's economy. The gross domestic product (GDP) is equal to the total
expenditures for all final goods and services produced within the country in a stipulated period of
time. The agricultural sector was considered as the largest pillar of the economy that accounted
for more than 21% of GDP and absorbed 45% of the aggregate labor force of the country. The
major components of agricultural sector are major and minor crops, forestry, fisheries and
livestock. The agriculture growth significantly declined to 3.2% during 2000s as compare to
5.4% in 1980s, and 4.4% in 1990s due to energy crisis, shortage of the irrigation water, and
deficiency of mechanization. Another important pillar of Pakistan’s economy is the industrial
sector. There are three key sub-sectors of the industrial sector of the economy like manufacturing
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sector, mining, quarrying, and energy sectors. The Industrial Sector displayed on average greater
growth of 9.7% since 2002-03. The growth performance in 2007-08 declined and the
deceleration process of growth that started after 2004 still continued due to internal and
worldwide factors like political instability, and poor law and order condition etc.
The services sector has been considered an economic power house for Pakistan. This sector
comprises of following sub-sectors; transport, communication, storage, insurance, finance,
defense, public administration, possession of dwelling, wholesale and the retail trade, the social,
community and private services. Over the previous many years, it grew on average 5.5% in
2000s that was lesser than the average growth of 6.6% in the 1980s. The continuous buoyant
tendency of services producing sector (SPS) sustained the commodity producing sector (CPS)
and particularly the economy of Pakistan.

2. Analysis
As the year ended among political uncertainties and disruption in financial management due to
the absence of a full-fledged Finance Minister the challenges ahead for Pakistan’s economy has
touched unprecedented point and therefore, needs a very crucial planning and careful scheduling
of disbursement.

Due to the fall in Rupee the economy has suffered. It may be mentioned here that when the
central bank took back its support on December 13th, Pakistani rupee was hit hard, adversely
affecting the currency. Pakistani rupee has always remained between 104 and 105 per dollar
since 2015, but in last three sessions it lost its value by over 5 percent. Currency’s level always
has a direct bearing on various aspects of the economy.

The outcome of the devaluation of Rupee against US dollar in the domestic market incidentally
coincided with a rise in the crude oil prices in the global market resulting in an upward trend in
oil prices from January 2018. The trend will obviously result in increase in the manufacturing
and transportation cost resulting in price hike of all the commodities produced locally. Thus in
2018 the country may witness considerable price hike. Therefore, inance managers of the
country, take all possible measures to maintain price hike to an acceptable level.

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With no major change in massive issues like electricity and gas shortage, unemployment, and
poverty, Pakistan may continue to face the problem of fiscal consolidation. The absence of
practicable ideas based on ground realities to deal with the changing circumstances, may turn out
to be the government’s most significant weakness to maintain financial discipline and economic
harmony.

On the other hand balance of payments issue may pose very serious risks to economy during the
next fiscal year, mostly because of ballooning deficits and erosion in foreign exchange reserves
down the line. The business community also expects the next year to be full of challenges. They
argue the country requires paying $12 billion in first half of 2018 as per its liabilities. ‘Exports
can grow by more than 20 percent in 2018 provided that government reduces energy prices
reasonably with the consent of stakeholders,’ a business leader said. Keeping in view the
liquidity position the government may be left with no choice but to cut its non development and
administrative expenditures to reduce fiscal deficit. The debt servicing is also a major non
development expenditure that is hampering the economic growth badly.

It may be mentioned here that the economy of Pakistan is the 25th largest in the world as far as
purchasing power parity (PPP), and 38th largest concerning nominal gross domestic product.
Pakistan has a population of over 200 million (the world’s 6th-largest), giving it a nominal GDP
per capita of $1,550, which ranks 132nd in the world.

However, Pakistan’s undocumented economy, according to a rough calculation is estimated to be

36 percent of its overall economy, which is not taken into consideration when calculating per
capita income. Pakistan is a developing country and is one of the Next Eleven, the eleven
countries that, along with the BRICS, have a potential to become one of the world’s large
economies in the 21st century. There is no doubt that Pakistan is a land of opportunities but the
sad fact is that it has never been tapped sincerely and honestly.

For instance Reko Diq Mine, famous for its vast Gold and Copper Reserves and believed to have
the world’s 5th largest gold deposit, remained untapped just because of reason best known to the
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authorities. The project was supposed to bring over $5 billion of FDI in the most impoverished
province of Pakistan and now, instead it is potentially poised to take away billions of dollars in
damages! How did we come to this? Time has come for our financial gurus and planning experts
to come out with a convincing answer to such burning questions.

a. Factors
One of the mainstays of any country around the world for economic development is its existing
reserves of the natural resources and assets base. Pakistan has plenty of natural resources such as
large reserves of oil and gas, great quantity of copper and ore deposits, in addition huge coal and
salt pits, and gemstones. Likewise, it possesses sound manufacturing industries of textiles and
clothing, steel fabricating, cotton ginning factories, sugarcane mills, sports goods and leather
manufacturing etc.

Apart from these mineral resources and industries, Pakistan also has vast tracts of agriculture
land. Out of total geographical area, about 27 percent is cultivated, and of this, 80 percent is
irrigated. Pakistan has one of the most developed irrigation systems in the world, i.e. Indus Basin
Irrigation System. We have rivers and sea. We have harbours to export and import goods. We are
blessed with four seasons and a fit tropical weather in terms of farming and agriculture.

There is no doubt that Pakistan is a resource-rich country and possesses mineral fuels,
manufactured goods and beverage and tobacco (13%). Moreover, the other resources include:
food and live animals (11%), crude materials (11%), chemicals (11%), machinery (8%) and
miscellaneous articles (8%). In addition, we have 175 billion tons of coal reserve. It is up to 618
billion barrels of crude oil. The natural gas reserves are also in abundance, it’s about 885.3
billion cubic meters.

Despite being blessed with fertile agriculture land, abundance of minerals and sound industrial
base, our economic development is not progressing as it should.

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The major challenges in achieving economic development are:

Energy crisis: The constant leading power cut-off challenge has troubled the economy. Since the
year 2000 this curse has wreaked havoc on the overall economy. As admitted by Federal
Minister for Water and Power Khawaja Muhammad Asif during a National Assembly session a
few days ago that the power shortfall has exceeded up to 5,000MW. Until energy lingering crisis
is not resolved the determined economic development is a far-off dream.

Terrorism: It is a huge stumbling-block for economic generation in Pakistan. Since 2002 we are
a war-torn country. The State Bank of Pakistan report (2016) says that war on terrorism has cost
$118 billion. According to Global Terrorism Index (2016), out of 163 countries, Pakistan stands
4th worst hit. This has long been a reason for Pakistan’s negative international image which has
limited the foreign investment in the country.

Wealth Concentration: In Pakistan wealth is concentered among a few rich families. The rest
of the population is dependent on them. Due to wealth concentration, around 35 percent people
spend their lives under poverty line. According to Multidimensional Poverty Index (2016) 39
percent population of Pakistan lives in poverty, which means that 4 out of 10 people in Pakistan
live in poverty.

Corruption: Since 1947, the ongoing corruption has steadily planted its roots. In current
circumstances, it has become a highly political debate as even the prime ministers of the country
are accused of it. The corruption has proven to be a menace for institutions. According to
corruption perception index (CPI 2016) out of 175 countries Pakistan stands at 116.

Youth unemployment: We are blessed in having about 63 percent of youth population. Half of
them are unemployed. According to Asian Development Bank (ADB) 50.7 percent of the
population aged 15 years and above is employed. Of it, the female ratio is very less. The rest are
struggling for survival. On an average, Pakistan needs to create 20 million job annually for
young people alone.

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Lack in quality education: Education is a key component for economic progress.
Unfortunately, our current literacy is 60 percent, least in South Asian countries. About 25 million
children in are out of school. More importantly, on grass root level, thousands of schools are
lacking very basic facilities such of sanitation, water, electricity, boundary walls etc.

Poor health facilities: The public hospitals depict bleak pictures where we find lack of proper
medicines, beds, equipment and etc. Due to absence of basic health facilities, 170 women die
from pregnancy for every 100,000 births. For every 1,000 babies born, 66 die before their first
birthday. In addition, approximately 44 percent children in Pakistan are stunted. Every day, due
to malnutrition and poverty children are dying in Thar.

Tax evasion: Regressive tax system collects about 90 percent tax revenue from common men.
Big corporations, landlords, businessmen, politicians do not pay their due share of taxes. They
earn lot but pay less tax; on the other hand poor earn less but are taxed more. Each year billion
rupees are evaded through tax havens established in foreign counties. The incidences of tax
evasion have hampered Pakistan’s economic progress.

Lack of good governance: We lag good governance and pro-poor fiscal policies.

What should be done to overcome the above challenges?

Government should improve relations with neighbouring countries like India, Iran, and
Afghanistan.

For economic information, communication and technology sectors among others should be given
more preference and government should improve ICTs system. Because in forthcoming years, all
the economies will be measured through technologies. India earns lots of money through its IT
industry.

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The employment zones for youth should be opened so as two-third of youth could contribute for
the economy of Pakistan. They could use their potentials and skills for better Pakistan.

The alarming education system should be improved. The quality education from primary to
university should be ensured. Proper school monitoring mechanism should be designed. New and
upgraded curriculum need to be introduced. Instead of investing lot of budget on defence side,
more budgets should be allocated for education.

Quality vocational training zones should be established in each district for youth as they could
learn technical skills in different cadres and trades. Government should ensure those vocational
zones that how they are operating and functioning. One of the primary ways of enhancing
economy is to support entrepreneurship and to create new avenues for growth by guiding the
youth.

Before everything else, the government ought to overcome the lingering energy crisis.

Pakistan should enhance export competitiveness by reducing cost of doing business. Pakistan
should adopt strategic approach to increase its export in neighbouring markets and underline the
need of holding single country.

As a result of overall economy dilemma, the common men and women in the country are facing
economic deficiency and deprivation.

b. Growth
The World Bank provides data for Pakistan from 1961 to 2017. The average value for Pakistan
during that period was 5.19 percent with a minumum of 0.47 percent in 1971 and a maximum of
11.35 percent in 1970. See the global rankings for that indicator or use the country comparator to
compare trends over time.

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Economic growth in Pakistan and other countries is calculated as the percent change in the GDP
from one year to the next. It measures whether production has increased or decreased, and by
how much.

Looking across many countries and over long periods of time, the average rate of economic
growth is about 2-3 percent per year. That changes from year to year as the economy goes
through recessions and expansions. However, if an economy routinely grows at about 5 percent
or more per year, this is a substantial rate of economic growth. Economic growth of 7-8 percent
is extraordinary.

Definition: Annual percentage growth rate of GDP at market prices based on constant local
currency. Aggregates are based on constant 2010 U.S. dollars. GDP is the sum of gross value
added by all resident producers in the economy plus any product taxes and minus any subsidies
not included in the value of the products. It is calculated without making deductions for
depreciation of fabricated assets or for depletion and degradation of natural resources.

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3. Conclusion
Keeping in view the significance of the key factors of economic growth of Pakistan, this study
analyzed the impact of these factors on the economic growth over the period 1975-2010 by
employing Johanson Co-integration approach.

Among the all independent variables, the estimated coefficients of agricultural output, and trade
openness were observed positive, but small. Consequently, it was stated that they witnessed a
small contribution into the economic growth as compare to other three key factors because of
energy crisis, shortage of the irrigation water, deficiency of mechanization, and because of being
less competiveness in the world market. Although, the persistent energy crisis in the economy
deteriorated utilization capacity of textile industry, the industrial sector displayed a positive and
satisfactory contribution into the real GDP. The share of the tertiary sector into the real GDP was
also remained reasonable.

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4. References

 https://dailytimes.com.pk/7932/9-causes-of-slow-economic-development-in-pakistan/
 http://ahsankhaneco.blogspot.com/2013/04/major-issues-in-economy-of-pakistan.html
 http://journals.univ-danubius.ro/index.php/oeconomica/article/view/2723/2604
 https://nation.com.pk/14-May-2012/a-lot-of-factors-affecting-pakistan-s-economy
 https://www.heritage.org/index/country/pakistan

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