Friday September 24, 2021

Blind spots

LAHORE: Needless to say industrialisation and development are essential for the growth of the economy, but are nearly impossible to achieve without quality human resource and domestic savings, which continue to be the pet blind spots of our planners.

We need an educated and healthy population and to wriggle out of the consumerist culture we have developed in the past three decades to ensure savings at domestic level. Our planners are in the habit of predicting growth over 5-6 percent without having any idea of the source and quantum of financing needed for this purpose.

To grow at 6 percent we need an investment of 20-22 percent of our GDP. This translates into $60-68 billion annual investment at our current GDP of $293 billion. Our current domestic saving rate is 12.3 percent. This saving would provide us with an amount of $36.9 billion. From where would we arrange the balance amount of $27.1 to $35.1 billion? We may arrange such huge funding for a year but not on a recurring basis. Gross national saving is derived by deducting final consumption expenditure from Gross national disposable income, and consists of personal saving, plus business saving, plus government saving, but excludes foreign saving. The other economies of the region that grow on a sustainable basis have a very high rate of domestic savings.

The current savings rate in China for instance is 44 percent and with this saving it can finance its investments in trillions of dollars on a regular basis. The national saving rate in Bangladesh is 35 percent and they do not need high foreign investment for growth. When they receive foreign investment it is an icing on the cake. India has a national savings rate of 29 percent and can largely finance its investment needed for higher growth.

At current national savings rate Pakistan can expect a sustained growth of around 4 percent only. Our average growth rate in the last 13 years is less than even 4 percent. Our competing economies in contrast posted growth rates ranging from 7-9 percent during that period. On current economic regulations and saving rates Pakistan cannot aspire to achieve the growth rates achieved by China, India or even Bangladesh.

During the accelerated growth in the Musharraf era the domestic saving rates reached a peak of 17.5 percent. Governments in Pakistan including the incumbents are painfully slow in reforming the economy. The distortions created by flawed policies have dented investor morale that has checked foreign investment as well. Domestic savings would grow through creation of jobs only. The government should facilitate labour intensive industries like value-added textiles and construction to create a maximum number of jobs.

As far as the quality of human resource is concerned China, India, and Bangladesh have superior social indicators then Pakistan that also support better growth. The literacy rate is 98.6 percent in China according to World Bank data. It is 74.4 percent in India, 73.9 percent in Bangladesh and 59.1 percent in Pakistan. Countries with higher literacy rates obviously have richer and capable human capital. This is the reason China is ahead of all other regional economies because of its better educated human capital.

Healthy population is essential for increasing workers’ productivity. Stunting is the impaired growth and development that children experience from poor nutrition, repeated infection, and inadequate psychosocial stimulation. Pakistan is facing a serious problem of child under-nutrition as about 38 percent of children in Pakistan and India are stunted. Stunted children in Bangladesh are 14 percent and in China 9.6 percent. Infant mortality rate is an important parameter for gauging the overall health of a nation. Infant mortality rate in China is 11 deaths per 1000 live births; it is 33 per 1000 live births in Bangladesh, 41 in India and 66 in Pakistan.

Countries with higher rates of population growth have to grow at a much higher pace than the countries with lower population growth. Latest population growth statistics reveal the rate in China is only 0.26 percent, which means if China grows by 7 percent the net growth after accounting for population growth would be 6.76 percent. India’s population is growing at 1.04 percent. With 7 percent GDP growth its actual growth would be 5.96. Pakistan’s population is growing at an annual rate of 1.99 percent so if it achieves a GDP growth of 7 percent its actual growth would be 5.01 percent. In other words Pakistan would have to register a GDP growth of 9.51 percent to attain the actual growth level that China achieves at 7 percent.