State of economic growth since 1960s
May 06, 2011
Pakistan’s Gross Domestic Product (GDP) has increased annually at 4.2 percent between 1972 and 2010; however, this increase has been unstable and fluctuating and has overtime shown a decreasing trend. The average GDP growth rate in early 60s was around 7 percent and this decreased overtime to an average of just over 4 percent in last 10 years.
In contrast to this declining trend, our regional competitors which include Bangladesh, India and Sri Lanka, have shown the signs of decreasing instability in their GDP growth rates, showing an increasing trend in GDP growth rates over the last 50 years. Bangladesh has been able to increase its average GDP growth rate from around 2 percent in the early 70s to over 5 percent in the last 10 years, Sri Lanka from 4 in the early 60s percent to 5 percent in 2010 while India increased its average growth rate from 5 percent to 6 percent during the same period. These figures in some sense paint a clear picture of the state and direction of our Economic Growth since the 1960s.
Why is growth needed?
To put it simply, we need economic growth to off-set and balance the effects of the increase in the population growth rate and the change in the age structure of our population. Nearly 50 percent of the Pakistani population is below the age of 20. Pakistan is heading towards a window where if right steps are taken can head towards success and if corrective measures are not taken Pakistan can head towards a disaster. Availing this window of opportunity is called a demographic dividend while the scenario that emerges after having ignored this is referred to as a demographic disaster.
As our population increases and age structures change, the dependency ratios i.e. number of people economically dependent on others also changes. It’s estimated by 2030, the dependency ratio will reach its lowest point, meaning the number of people in the working group will far exceed the number of people dependent on others for survival. If by this time we are not able provide suitable jobs for these people, unemployment rates will rise sharply, increasing poverty, crime and fueling extremism. Therefore in order to be able to avoid this “disaster” scenario, we need economic growth today so we can provide economic opportunities for these youth tomorrow.
What is the new growth strategy?
The New Growth strategy aims to increase the long-term growth figure of Pakistan in two phases. In the first phase, the emphasis will be on raising the growth of Pakistan from its current 3 percent to the trend rate of 5 percent. This will be achieved through increasing the under utilized capacity of the industry, which is currently not operating at an efficient level. The will phase will focus on the energy sector, reforming of budget to mobilizing additional revenues, making public expenditures more effective and stabilizing the economy. The second phase will intend to increase the growth rate from the trend level of 5 percent to sustaining a higher level of 7 percent growth for at least the next decade in order to provide employment opportunities for the youth of tomorrow. It will focus on sectoral interventions, i.e. strengthening the banking sector, deepening capital markets, making them more responsive towards investments needs and raising productivity through improving sectoral efficiency. This growth will then be sustained by expanded regional trade, human resource development, governance reforms and steps taken towards making cities the engines of growth and increasing the overall connectivity in Pakistan. The first and second stages are not substitutes but the first stage will complement the second as the second phase kicks in.