Do we have an economic growth strategy?

In 1970, Pakistan’s economy grew by a wholesome 11 percent. In 1980, Pakistan’s economy grew by a robust 10 percent. In the first five decades of our independence, Pakistan has been a high-growth, low inflation economy. Now we have become a low-growth, high inflation economy. Over the past 20 years, economic growth has stagnated. In 2010, Pakistan’s economy grew by a meager 1 percent. Lo and behold, in 2020, the economy actually shrank by 0.9 percent, for the first time that the economy actually experienced negative growth in 68 years. In 2022, stagnation of economic growth continues with two additional rather worrisome indicators -- macroeconomic imbalances and a serious balance of payments crisis.

Do we actually have an economic growth strategy? The PMLN’s classic economic growth strategy rests on three pillars: hard infrastructure development, an overvalued rupee and domestic consumption. In 1992, during the first PMLN government, this economic growth strategy delivered a 7.7 percent rate of economic growth. In 1997, during the second PMLN government, the rate of economic growth dipped to 1 percent. From 2013 to 2018, during the third PMLN government, the rate of economic growth hovered around 5 percent a year.

A PMLN led government is back in power. Two very important questions: Will the PMLN’s classic economic growth model work in 2022? Has the PMLN-led government developed an alternative economic growth strategy?

To answer the first question, I am convinced that the PMLN’s classic economic growth model will not work in 2022. There are two reasons for that. First, there’s little or no money in the national kitty for any major hard infrastructure development. Second, the SBP has liquid foreign exchange reserves of $10.5 billion barely enough to buy six weeks of imports. So there are no dollars in the SBP’s ‘war chest’ with which an overvalued rupee can be supported and sustained. Question: Has the PMLN led government developed an alternative economic growth strategy? Answer: I do not know. All I can say is that if the PMLN-led government has developed an alternative economic growth model they have not shared it with us. We definitely need an economic growth strategy.

In the 60s, South Korea was a small, agriculture-based economy. Over the following five decades, South Korea managed sustained economic growth and by 2016 it had become the 11th largest economy in the world. South Korea had an economic growth model. South Korea’s economic growth strategy had two pillars: human capital accumulation and productivity growth. In the 80s, Vietnam was in a state of severe economic crisis with inflation at 700 percent, a trade deficit and economic stagnation. In 1986, ‘Doi Moi’ Vietnam’s economic growth model was introduced. Doi Moi had five pillars: Privatisation; Foreign Direct Investment; end of subsidies to Public Sector Enterprises; busting of domestic cartels and free trade. For the record, Vietnam has signed 56 Free Trade Agreements (Pakistan has signed only 5 FTAs).

Red alert: Pakistan is passing through two major realignments -- an internal political realignment and an external geopolitical realignment. Pakistan desperately needs a new economic growth strategy. We need to embrace three things: savings, investment and productivity. We need to learn from South Korea and Vietnam. We need to privatise. We must end all subsidies to the so-called Public Sector Enterprises. We must bust domestic cartels. And we must embrace free trade by signing as many Free Trade Agreements as we can.