Pakistan’s economic decline

LAHORE: In 1990, Pakistan boasted the highest GDP per capita among India, Bangladesh and China. However, 35 years later, it finds itself at the bottom of the list, highlighting the urgent need for sweeping reforms to regain economic footing.

In 1990, Pakistan’s GDP per capita stood at $495, ahead of India’s $367, China’s $317, and far above Bangladesh, which was significantly poorer. According to IMF data, as of December 2023, Pakistan’s GDP was $338.37 billion with a GDP per capita of $1,663.99, lagging behind India’s $2,940, Bangladesh’s $2,551 and China’s $12,614.06.

To narrow the widening economic gap with its neighbours, Pakistan must achieve a much higher annual GDP growth rate than its current performance. Between 2001 and 2019, the country’s average GDP growth rate was a modest 2.377 per cent, compared to India’s robust 7.021 per cent. Surpassing India’s growth rate would require Pakistan to implement transformative reforms and maintain a consistently high growth trajectory over several decades.

Modernising agriculture is a critical area that could accelerate GDP growth by increasing productivity and enhancing export potential through improved practices and supply chain efficiencies. Investments in industrialisation, particularly in textiles and manufacturing, can boost exports and generate employment. Similarly, developing the IT sector can enhance service exports and enable integration into the global digital economy. Expanding energy infrastructure, with a focus on renewable sources, will not only support industrial growth but also ensure energy security. Improved transportation and logistics systems can further facilitate trade and attract foreign investments.

To mobilise the resources needed for growth, Pakistan must prioritise attracting foreign direct investment (FDI) through a better business environment, regulatory ease, and tax incentives. Expansion of special economic zones (SEZs) can bring multinational firms into the fold. Encouraging local businesses and industrial groups to reinvest profits and strengthening the SME sector through targeted lending are also crucial for fostering entrepreneurship. Public-private partnerships (PPPs) can play a vital role in developing large-scale infrastructure projects and agriculture value chains.

Engaging expatriates to invest in startups, real estate, and industrial ventures can provide an additional boost to economic development. The introduction of diaspora bonds and investment schemes could unlock significant financial potential from overseas Pakistanis.

Export growth and diversification are indispensable to accelerating GDP growth. Expanding non-textile exports such as IT, engineering and agro-products is essential. Negotiating better trade agreements, including GSP+ and pacts with China and GCC countries, could open up new markets. At the same time, reducing import dependency would help strengthen foreign exchange reserves and stabilise the economy.

Governance reforms are equally vital. Cracking down on corruption and smuggling would prevent resource leakages. Negotiating concessional financing from international institutions like the World Bank, IMF, ADB and AIIB can provide the capital necessary for infrastructure, energy, and industrial development.

To bridge the economic disparity with its neighbours, Pakistan must adopt bold, forward-looking policies while ensuring political stability, consistent governance, and investor confidence. Addressing these challenges effectively could pave the way for sustained economic growth and a brighter future.