Globally renowned Pakistani economist Atif Mian, who has consistently shown academic interest in Pakistan’s economy, recently put forward the idea that Pakistan must sustain an average annual growth rate of five percent for the next fifty years. Only then, he argues, can Pakistan hope to reach a level comparable with developed economies. His observation has a strong empirical foundation. Pakistan’s current per-capita income stands near US$1,500, while the global average is approximately US$15,000. To bridge such a staggering income gap, there is no doubt that a long period of consistent economic growth is essential. Yet, our own history reveals a harsh reality: Pakistan has not even sustained three consecutive years of five percent growth over the past five decades. In such a scenario, expecting to maintain it for half a century seems almost impossible under current structural economic patterns.
However, a deeper look at the economy suggests that GDP growth alone is not the only determinant of national income. Pakistan today holds one of the most undervalued currencies in the world. Our purchasing power parity conversion factor is close to six, meaning that one US dollar spent in Pakistan buys roughly six times more goods and services than it does in the United States. No other major economy shows such a large valuation gap. If Pakistan’s currency merely shifts from a PPP-gap of six to two, then mathematically our national income per capita would be recorded not at US$1,500 but closer to US$4,500. In other words, almost two-thirds of the journey toward middle-income status could be achieved simply by allowing the rupee to move toward its fair value. Unfortunately, the prevailing policy mindset treats currency devaluation as a shortcut to progress, as if the key to development lies in weakening one’s own currency. Many economists justify a low exchange rate in the name of the “real exchange rate,” despite its poor alignment with real-world productivity.
There is a common belief that a stronger currency makes exports expensive and reduces competitiveness, while making imports cheaper and worsening the trade deficit. That argument may apply to China or Vietnam, whose exports dominate national production. But Pakistan’s structural reality is entirely different. Exports constitute only about ten percent of Pakistan’s total output, while ninety percent is consumed domestically. Moreover, nearly all domestic production—whether agriculture, industry, construction or transport—relies on imported inputs. Seeds, fertilizer, steel, fuel, raw industrial materials, and most new machinery are sourced from abroad. When the rupee is weakened, all these inputs become expensive, pushing up the cost of production, discouraging industrial expansion, and making new businesses unviable even before they begin. Ironically, instead of reducing imports, devaluation results in further dependence on them, while simultaneously damaging the very productive base that should help Pakistan escape its import trap.
Contrary to popular belief, Pakistan’s exports do not face difficulty due to high prices. According to Numbeo, Pakistan is already the cheapest country in the world. Many Pakistani products sell domestically at barely five percent of European price levels. If price alone determined export success, Pakistani goods would have flooded global markets. Consider the example of okra. During Eid-ul-Adha last year, wholesale prices in Pakistan fell to around Rs. 50 per maund, or Rs. 1.25 per kilogram. Meanwhile, in Germany, the same vegetable sells online for around €10 per kilogram, which translates to roughly Rs. 3,300. Despite this astonishing 2,500-to-1 price difference, Pakistani okra is absent from European shelves. The problem is clearly not affordability, but compliance, grading, packaging, logistics, and above all, quality standards. No amount of currency devaluation can compensate for weaknesses in these areas.
There is, therefore, a more realistic and attainable formula for Pakistan’s progress. If the country succeeds in reducing its trade deficit through structural reforms—rather than through artificial currency suppression—the rupee will gradually move closer to its true value. When that happens, Pakistan’s statistical income will rise, the gap with global levels will shrink visibly, and the country may achieve meaningful convergence not in fifty years but possibly within the next fifteen. Sustainable export-boosting reforms, improving domestic productivity, ensuring compliance with international standards, and reducing reliance on imported fuel and raw materials are all part of this journey. In my view, Atif Mian is right to emphasize the need for long-run stability in growth. Sustaining a five percent growth rate over a long period remains essential. But it must be accompanied by a second pillar: reducing the trade deficit without deliberately eroding the national currency. Progress requires allowing the rupee to approach its fair value, strengthening domestic production instead of weakening it, and enabling Pakistan to claim its rightful place among the community of nations. Only then can we hope to move confidently toward global economic parity.
—The writer is Director, Kashmir Institute of Economics, Azad Jammu and Kashmir
University.
