PAKISTAN’S GDP

Zach Lowe

  Although Pakistan is in recent news for President Pervez Mussarraf claiming emergency rule, Pakistan is among one of the fastest growing economies in the world. Pakistan’s stagnant GDP grew from a meager $71.5 Billion US in 2002 and exploded to $124 billion dollar economy (Official exchange rate). Even though Pakistan’s economy has been on the rise since the 1951 recession, until recently, has been described as an extremely vulnerable economy to internal and external shocks. History though, has shown its economy’s resilience to internal and external shocks by still growing through multiple incidents such as the Asian financial crisis, economic sanctions (after nuclear testing in 1998), global recession, severe rioting in Karachi, severe drought, and the 2005 Pakistan earthquake. Pakistan has also showed an increase into modernity with incentives for children under the age of 16 to attend school; also major foreign automakers such as BMW, Toyota, and Honda have invested in manufacturing facilities within the country. Dr Salman Shah the Federal advisor on finance stated to the media that the per capita income now stands at $808. Pakistan has jumped from a slow growing economy to in the 2000 it is described as a high growth low inflation trajectory.  

The central bank has controlled Pakistans inflation at around 3% a record since 1980, but recent inflation has spurred to 9% in 2005 and eased to 6.9% in 2006. The CIA fact book states this as one of the biggest threats to the Pakistani economy. The exchange rate for a US dollar is 58 rupees (2004) for $1 US dollar.  Pakistans manufacturing section has grown 18% in 2003 and is  still growing stable. A decrease in government deficit has resulted in the government borrowing less money on the money market, lower interest rates, increased lending to the private sector, business and consumer sector. Pakistan has a strong 30 million middle class. Taking into consideration that middle class in Pakistan is average income of about $10,000 a year.  Poverty in Pakistan is still among one of the forefront issues, last year the government spent 1 trillion rupees to help alleviate poverty. The resulting outcome of the efforts of the Pakistani government helped cut poverty from a staggering 35% to (2000-01) a 24% (2006). Even with promising numbers poverty is still a major issue in Pakistan.  

The breakdown of Pakistan’s GDP per capita is about $2600 (PPP, 2005) the World Bank still considers Pakistan a low-income country. On the contrary it’s considered a “Medium Development Country” on the Human Development Index 2005. Pakistan has a large informal economy, something to take into consideration of error in calculating Pakistan’s GDP. The government is actively trying to document and assess its large informal economy. Pakistan has a population of 165 million and its growth rate is 1.96%. Of the 165 million 48 million are in the labor force. The unemployment rate is pretty substantial at 6.5%. Something to note is that Pakistan does use child labor and extensive export of labor to mostly the Middle East.

The five major sections that make up the GDP of the Pakistani’s $124 billion dollar economy are Agriculture 23.1% Manufacturing 18.3, Trade 19.1, and Transportation & Comm. 11.1% and other services 9.1% Distribution. The GDP by sectors are Agriculture 22.7%, Industry 26%, and Services 52% (2006). Investment is 15.6% of the GDP. Public debt makes up 55% of GDP.

The accuracy of these numbers can be contested. Because Pakistan is considered an unstable government by the CIA and an unstable economy by the World Bank, the rate of high inflation can negatively affect the GDP. The actual real purchasing power according to US dollars can greatly jump down, especially if we see a high jump as in 2006 of 9%. Another thing that could be a source of error in the measuring of the GDP, is that as stated before Pakistan has a high informal economy. This means that a high amount of economic activity within Pakistan is unregulated or taxed by the government. Taking this into account, Pakistan’s GDP could be much higher than it is stated. This is an extremely important source of error, Pakistan’s true GDP is not known! Opium trade continues to be a major problem with Pakistan, although not counted when calculating GDP if this industry was regulated it could also increase Pakistan’s GDP.

In recent news President Pervez Mussarraf has claimed emergency rule. This is a direct example of the instability of the government. Such instabilities can not just be limited to governmental rule, but one must take into account of economic rule. This can question the accuracy and methods used by the Pakistani government to acquire their economic figures. Another interesting aspect is Pakistan is somewhat “false” growth. For lack of a better term the numbers are somewhat inflated. Pakistan was highly sanctioned by the world when they did nuclear test in 1998. These extreme economic sanctions sent their economic growth into that of a snail. A mere 3% and then radically grew to 6.8%. At its highest around 8%. Coincidently this rapid miracle growth was right around when the economic sanctions where lifted. Basically the world placed a restriction on the Pakistani economy and when its economy became unrestricted and its gates opened up to the world, the economy did what it should grow. This can make the economy look stronger than it really is. Even though Pakistan is showing stability in an adverse environment, its economy has really only been non-restricted for less than seven years.

Because Pakistan’s economy has miraculously grown, but there is a lack of over time to show its consecutive growth, this makes the GDP growth look larger than it is. Who really knows how much Pakistan’s economy would have grown if it was never restricted. Would we still see this huge growth rate, second largest of Asian countries after China, or would it still be stagnantly growing as we saw in the late 90’s.  Another thing to take into account on the economy is it is easy to force an economy that is practically nothing to grow when you inject technology and economic reform into it. All of this must be taken into account when considering error of the calculation of Pakistan’s GDP, Inflation of numbers, Instability, an economically sanctioned economy, and inflation.