Pakistan, for decades, has suffered deeply by the turbulent political environment with a constant change of power among politicians and military. The strategically significant neighborhood of the country has further affected focus on economic and human development which has brought Pakistan among lowest ranking nations in socio-economic development despite being the sixth populous country in the world. Today, as Pakistan successfully makes third consecutive shift in political government, the hopes for its economic growth become stronger under the vision of new government that is bent on raising human development on smaller and larger scale. This article analyzes the growth rate of Pakistan in terms of GDP over the past five decades to understand how various economic and social factors affect the GDP growth rate in country.
In simple terms, GDP refers to Gross Domestic Production which includes monetary value of all products and services that are produced in a country irrespective of who produced it. The value of GDP is based on finished products and excludes certain elements like inflation, exchange rate impact, and taxes and subsidies since they can exaggerate or understate the actual value of finished goods and services.
Components of GDP
The main elements that make up a GDP figure include Consumption expenditure which is the spending of households on goods and services, Investment expenditure which is the investment made by government, individual or national and foreign company in building an asset that is further used in production of goods and services, Government spending that is money used by public entities for provision of goods and services such as education, health facilities etc. and finally Net Exports that is difference between country’s net imports and exports. For most of the economies and Pakistan, consumer expenditure constitutes largest section of GDP.
Significance of GDP Growth Rate
GDP growth rate is the most significant economic indicator used for analyzing the financial health of a country and is highly dependent on business sector’s performance, however, for countries with high population like Pakistan, this figure can also be a bit misleading when evaluating the standard of living and therefore, GDP per capita should also be studied to evaluate the actual income of a country. According to various analysts, GDP growth rate is mostly a positive indicator if it stays between 2% to 4% as very high GDP growth rate can often lead to inflation or are a sign of economic bubbles (Stanford University, 2016).
Who Collects Data for GDP in Pakistan
Pakistan Bureau for Statistics (PBS) is responsible for collecting data for GDP of country on weekly, monthly and yearly basis. The State Bank of Pakistan also publishes regular data for GDP rate of Pakistan.
GDP Growth Rate in Pakistan
The graph below shows the GDP annual growth rate (%) and Annual GDP nominal value ($) of Pakistan from 1960 to 2020.
Pakistan GDP from 1960-1980
The GDP value for Pakistan in 1960 stood at $3.2 billion and showed exceptional growth over the years with growth rate rising from 5.8% to 10% in 1965 and 11.3% in 1970. During 1960s, Pakistan was the fastest growing economy in the region with its industrialization policies and commodity growth spurt. The GDP growth during 1960s can be attributed to the Large and medium scale manufacturing that grew at more than 8%, establishment of automotive and cement industries and huge investments in catering to the power and hydro needs of country. Moreover, the agricultural reforms were made aggressively under General Ayyub’s regime as the government aimed to promote investment in agricultural sector with high yielding seeds and modern methods.
However, the growth spurt of 1960s and early 70s soon faded as several factors like increased public debt and its mismanagement, 1971 East Pakistan war, and global oil crisis of 1973 hugely affected the growth rate of Pakistan. Moreover, the nationalization policy of Zulfiqar Ali Bhutto in 1970s brought several downturns in the economy. Under the nationalization policy of Bhutto, the role of Planning Commission, that overviewed industrialization process and its shift to nationalization, was made marginal which further led to eruption of corruption and continued its savage attacks on growth of industries in Pakistan. The results were obvious from the decline in GDP growth rate of Pakistan during early 1970s.
Pakistan GDP 1980-2000
1980s and onwards in Pakistan witnessed slowed GDP growth mainly attributed to nationalization policies. However, under Bhutto regime few industries were also established like Port Qasim, Steel Mills and Mechanical Complexes that kept GDP from falling further. The GDP rate in 1980 was around 10% that can be partly attributed to foreign aid Pakistan received for Soviet War and the agricultural growth attributed to construction of Tarbela Dam. Moreover, during 1980s, the remittances increased substantially which further supported the local economy. However, the GDP kept declining in coming years with growth rate hovering around 4% to 5%. The GDP growth in 1990s further declined as the decade witnessed toppling of governments under corruption charges and no sustainable economic policy was established to tackle the slowing growth of Pakistan’s economy.
Pakistan GDP 2001-2012
After a disappointing period of economic growth during 1990s, some sound economic policies and social uplift programs were introduced in Musharraf’s era followed with privatization commission in action again. The GDP of Pakistan increased from $62 billion in 2000 to $152 billion in 2008 while the growth rate remained stable in range of 4% to 7% during 2000s. During the 2000s, due to expansionary policies of Musharraf government, the foreign investment rose to 23% of total GDP, contributing to rising employment and growth of industries and thus, consumer expenditure. Moreover, the inflation rate declined from 11% in 1990s to around 4% in 2001 and onwards. Pakistan also received billions of dollars in aid from 9/11 war on terror as well as remittances which kept exchange rate stable and thus, higher growth rate.
Since PPP government took charge in 2008, the economic growth of Pakistan started taking new hits from the rampant corruption, insecurity, terrorism, and lack of economic vision of the government which slowed GDP growth rate of Pakistan from around 6% in 2006 to 1.7% in 2008 and remained within similar range along with high inflation of 20% in 2008 and 13% in 2009. The State Bank of Pakistan also failed to implement monetary policies to control inflation and circulation of money for growth which further crippled the economy. The rising exchange rate and oil prices increased cost of production while exports continuously reduced.
Pakistan GDP 2013-2019
The previous government under PMLN took various steps to increase the GDP growth rate in their tenure including the IMF Extended Loan Facility to invest heavily in infrastructure for power sector, improving balance of payments, stabilizing exchange rate and collection of taxes. This led to increase in GDP growth as consumer spending increased again. The GDP growth rate from 2013 to 2018 increased from around 4% to 5.5% in 2018 while inflation dropped as well. Moreover, the CPEC related industries and infrastructure under the project also contributed to GDP growth. However, the government’s lack of investment in human capital, technology and industrial policies continues to affect the real growth in economy as exports kept declining reaching low levels of contribution to GDP (12%), lowest in region and unemployment keeps rising lowering the consumer expenditure in future.
Pakistan GDP Growth Rate 2020 – Way Forward
Under the PTI government, Pakistan is witnessing a sudden shift in approach to economic growth as the government tightens its monetary policy and implements a strict industrial policy for registration, tax collection and government budget. The GDP growth rate already has declined from 5.8% in 2018 to 3.29% in 2019 and is expected to decline further in near future. Analysts have claimed that under the IMF Extended Loan Facility, PTI government has successfully been implementing structural reforms to strengthen the economy in future and includes several measures that have temporarily slowed down Large Scale manufacturing, real estate and consumer prices. However, the investment on human developed has raised significantly while blocking of illegal modes of payment and tax evasion will benefit country in long term.
The government of Pakistan has also significantly reduced imports in the country while exports of various sectors specifically IT services is expected to grow significantly in near future. Such measures will boost confidence of foreign and local investors in government’s support in business and thus, the GDP growth rate is expected to improve in 2021 and onwards (World Bank, 2019). Moreover, the stabilization of exchange rate after huge adjustments in 2019 and recent massive decline in oil prices are expected to further decrease the current account deficit and import cost pressure.