The economic journey of Pakistan always has been a rollercoaster ride. The reliance upon foreign aid and remittances, along with lack of real domestic economic base, has been a constant source of uncertainty for the country’s economy. With apparently impressive growth rate, the state of economy is not as hunky-dory as it is portrayed by the authorities. Economy is not all about numbers. There are many problems flying still under the radar in Pakistan’s economy.
The growth rate for 2016-17 has been estimated over 5 percent – first time after 2006-07. But this growth has been mostly consumption-driven. Pakistan is a lucrative consumer market as the country hosts the sixth largest population in the world. But, an economy cannot be run on consumption basis in the long run. Even with a good growth rate, the government has missed a number of important macroeconomic targets including sectoral and overall GDP (gross domestic product) growth, investment and exports. The current trajectory of growth is unlikely to be sustainable unless these challenges are addressed.
The growth is unbalanced; the 5.3 percent growth rate does not appear to be broad-based with 67 percent of the contribution coming from the services sector only while industry and agriculture sectors contributed 20 percent and 13 percent, respectively. The unbalanced growth problem also contributes to lack of exports and unemployment. Services sector does not
contribute to employment as industrial and agricultural sectors do. The situation of agriculture sector is particularly dire which accounts for 42.3 percent of employment but contributes only 19.53 percent to GDP. Textile sector, the largest industrial sector of Pakistan’s economy, is also in shambles; having serious implications for the labour force and employment prospects. Less growth in industrial and agricultural sectors also means less exports. In addition, overvalued currency is also a big cause of decrease in exports. Textile products, like many of Pakistan’s export commodities, are price-sensitive. Overvalued rupee makes exports less competitive. Commerce ministry largely blames decrease in Pakistan’s exports for three years straight on an overvalued currency; therefore, a cheaper currency could help them become competitive again.
Weak exports are not the only predicament; high imports, too, are a part of the problem. As economy is driven by consumption rather than production, market is flooded with imports. Among these imports are the capital goods which are being imported from China as part of China-Pakistan Economic Corridor (CPEC) project. Half of Pakistan’s imports from China are capital goods, and their value rose by 30 percent between 2015 and 2016. Few in Pakistan have a bad word to say about the CPEC, but it certainly seems to be creating some negative impacts on the country’s economy. The IMF is right to be “appalled” at the implications for Pakistan of having to pay back billions of dollars in expensive loans to China with no export recovery in sight. Trade deficit was targeted at PKR 20.4bn for current fiscal year but actual deficit swelled to PKR 24bn. Exports fell by 2.3 percent while imports increased by 19.88 percent.
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