Comment: Our growth ceiling

LAHORE: Businesses in Pakistan continue to press the State Bank of Pakistan and the government to lower the policy rate, but the forex-starved central bank is resisting. It knows full well the implications of such a move for the rupee.

Pakistan has become steadily more expensive for domestic consumers and businesses, largely because of the continual depreciation of the Pakistani rupee. Forty-five years ago a return ticket from Lahore to London with two stop-overs cost $1,200, which at that time converted to Rs1,200 (at roughly Rs9.9 per the dollar). Today the price is almost the same $1,200 but in rupee terms amounts to about Rs 344,400, reflecting more than a 30-fold depreciation of the rupee since 1980. Imported items and raw materials have become correspondingly more expensive — any decline in rupee value pushes up inflation and final-user prices. In recent months, even when inflation appears to stabilise in headline terms, persistent rupee weakness continues to fuel price pressures.

Proponents of lowering the policy rate argue that growth of 3-4 per cent is hardly acceptable in a country with Pakistan’s youthful population and economic potential. They look across at competing economies and wonder why Pakistan is lagging. But experts caution that Pakistan lacks many of the attributes required for sustained high growth. Leadership, good governance, and the prudent deployment of scarce resources all fall short.

The story of the four ‘Asian Tigers’ — Hong Kong, Singapore, South Korea and Taiwan — offers a stark contrast. These economies started with modest resources and weak industrial bases in the 1950s, yet managed decades of double-digit growth by mastering modern techniques, importing know-how, opening up to global markets and directing energies purposefully. Earlier research noted that their manufactured exports rose from about US $4.6 billion in 1962 to over $1 trillion by 2012. Asian countries’ manufactured goods exports are now measured in the multiple-trillions of dollars range — for example, Asia’s total exports were about $9.14 trillion in 2024.

The key mechanisms that made this possible included opening up to the global economy and importing not only goods but ideas, technology and know-how. Exploiting global demand by producing for export rather than relying solely on protected domestic markets. Allowing labour, capital and skills to move rapidly from low to higher productivity sectors — in short, consistent structural transformation. Maintaining macro-economic discipline despite the fact that the Asian Tigers had high growth, they did not allow debt to spiral out of control, because growth outpaced the accumulation of public liabilities.

By contrast, Pakistan’s model has for decades emphasised protecting domestic industries from competition, substituting imports with local production using obsolete technology, and sheltering inefficient firms rather than challenging them to compete and evolve. The outcome: production that meets domestic demand, perhaps, but little that can be exported to the world. Can Pakistan emulate them?

Growth by itself is not enough. Societies require a dense, inter-woven organisation of production, skills, firms and markets. In the Asian Tigers, it was not just that a few firms got rich — the whole society moved. In Pakistan, too often a selected few succeed while large parts of the economy remain disconnected. Bridging that gap matters.

The growth of around 3-4 per cent is definitely low but value gained from that growth could be significantly higher if resources are managed smartly. The question is not just how much Pakistan grows, but how well it uses what it grows.