IN its report on the Asian Development Outlook for April 2024, the Asian Development Bank (ADB) projected a real gross domestic product (GDP) growth rate of 1.9 per cent in 2024 and 2.8 per cent for the fiscal year 2025. Pakistan’s growth projection is relatively anemic compared to other South Asian economies. Except for Afghanistan, the projected growth rates for Bangladesh, India and Maldives for FY2024 are expected to exceed 5 per cent. The projected growth rates for Nepal and Bhutan are 4.4 per cent and 3.6 per cent, respectively. The growth rate of Sri Lanka is 1.9 per cent, which is comparable to Pakistan’s growth rate.
Despite Pakistan’s slow growth in the region, the positive growth signifies an increase in the overall output supply in the economy. The dearth of positive economic growth could result in inflationary pressures as demand increases or, conversely, lead to higher imports to meet the heightened demand, lowering foreign exchange reserves.
Pakistan calls for an annual GDP growth rate of 6% or higher, considering population dynamics, external factors, and the investment climate. Based on the World Bank report ‘Pakistan at 100,’ it is suggested that Pakistan should aim to accelerate and maintain a growth rate of 6 to 8 per cent per year. By doing so, Pakistan can tap the potential to become an upper-middle-income country by 2047, the country’s centenary celebration. By achieving the desired growth rate, Pakistan has the potential to significantly increase its economy size from over $300 billion to $3 trillion. This would substantially increase gross national income per capita, from $1,560 to over $13,206 by 2047.
Pakistan also requires an annual growth rate of over 6% to cope with the influx of two million individuals stepping into the labour market each year. Based on the National Human Development Report (NHDR) by the United Nations Development Programme (UNDP), the number is projected to increase from four million to five million by 2035. Economic growth drives economic development, especially in addressing unemployment, poverty, and inequality. Tragically, Pakistan has been unable to make significant progress towards sustained economic growth and has instead continued to diverge further from its intended path.
The economic performance of Pakistan’s economy in the post-pandemic era continues to be unappealing. The impact of domestic supply side shocks caused by floods contributed to low economic growth. Furthermore, the Russia-Ukraine conflict has increased global prices, currency depreciation, higher production costs, and commodity market challenges. The slow economic growth of Pakistan is unambiguously attributed to the macroeconomic imbalance fueled by political instability. Macroeconomic imbalance encompasses a range of misalignments in critical indicators, including fiscal imbalance, current account imbalance, savings and investment imbalance, and inflationary imbalance. These imbalances encompass the economy’s external, monetary, and real sectors, crucial in shaping an upbeat economic outlook.
Political instability exacerbates macroeconomic imbalances as the frequent change of governments leads to a lack of policy consistency and disrupts economic planning. As a result, economic volatility is triggered as uncertainty grips investors and businesses. Political stability in Pakistan has remained elusive following the general election of 2024. The lack of a single-party majority coupled with a fragmented parliament depicts complexity in Pakistan’s political landscape. The ongoing election controversies continue to depict a political landscape filled with tumultuous and no immediate prospects for stabilization. The current political situation in Pakistan is highly delicate and has far-reaching consequences for governance, economic stability, and the overall development path. Pakistan desperately needs political stability to strengthen its economic prospects and move towards outlined sustained growth. In order to achieve this goal, it is essential to foster open and inclusive discussions, promote consensus among political stakeholders, enhance the functioning of democratic institutions, enact comprehensive legal and electoral reforms, and implement economic stabilization measures to address economic disparities.
—The writer is working as a research associate at the Centre of Economic Planning and Development, Minhaj University Lahore.
