Re: Economic growth question
Another chart said 220m ppl by 2020. I hope that's right!
Re: Economic growth question
**Zahid_ind: **
Whatever calculation is there, it is 100 percent correct, so do not get worried 
Nominal growth in rupees is a different thing then real growth. You are right that if inflations get to 50 percent, nominal economical growth in rupees would be huge. Regardless, real economical growth would still going to be different, unaffected by inflationary growth.
To understand, think in simple way. Please note, the example I am putting under is not taking true figures but I am assuming that average inflation is 10 percent from 1970 to 2006.
Let say, you are earning 500 rupees in 1970 and you are living a reasonable life. Then prices of everything went up, some more and some less. Prices on average went up by 10 percent a year. That means in 2006 (after 36 years), something that was selling at Rs 5 on average is now selling at 155 rupees (31 times more then its 1970 selling price). This shows that in nominal rupees, price have gone up 31 times, but in real rupees, it is still same.
Suppose that price of that particular item gone up from Rs 5 to Rs 200, then it would be bigger increase then inflation and would mean that price of that item has gone up more then inflation, or gone up in real rupees.
Suppose the price of that particular item gone up from Rs 5 (in 1970) to Rs 100 (in 2006) then it would be an increase lower then inflation and would mean that the price of that particular item in real rupees has come down (note: in nominal rupees it has still gone up).
If you were earning Rs 500 in 1970, to stay put with inflation, you should be earning Rs15500 in 2006 and that would mean you have same earning as in 1970 (adjusted for inflation). If you earn more then 15500 then your income has increased in real term and if you earn less then 15500 then your income has decreased in real term.
Thing to note is that, with earning of Rs 500 in 1970, you could have bought 100 items worth Rs 5. With earning of Rs15500 in 2006, you would be able to buy 100 items at Rs 155 each. That is same number of item in 1970 and in 2006, regardless of increase in nominal income. It means that even though in nominal rupees your income has gone up substantially, from Rs 500 to Rs15500, still your real income is same.
To have real increase in income, you will have to earn more then Rs 15500.
Now suppose, if exchange rate in 1970 was 10 rupees to a dollar then in 1970, you were earning 50 dollars.
If in 2006, dollar exchange rate has increased to Rs60, then it means your income of Rs 15500 becomes 260 dollars. On the other hand, if exchange rate has increased to Rs50 a dollar in 2006, then with same income (Rs 15500) you will be earning 350 dollars.
Thus, in dollar terms, your income depends on exchange rate and your rupees income. It is a different matter that exchange rate takes into account many things including inflation, trade balance, real growth etc.
**Let comes to real life figures: **Now check the GDP and Per Capita Income of Pakistan during last few years. Let analyze GDP figures of couple of years comparing with previous years.
For Nominal GDP increase:
http://www.statpak.gov.pk/depts/fbs/statistics/national_accounts/table4.pdf
(all GDP figures are in million of rupees)
2002-2003 Nominal GDP = 4481412
2003-2004 Nominal GDP = 5142610 (increase of 14.75 percent over last year)
2004-2005 Nominal GDP = 6129676 (increase of 19.19 percent over last year)
For Real GDP increase: (the figures given in rupees adjusted for inflation bringing it in rupee value for year 1999-2000):
http://www.statpak.gov.pk/depts/fbs/statistics/national_accounts/table5.pdf
(all GDP figures are in million of rupees)
2002-2003 Real GDP = 3884952
2003-2004 Real GDP = 4134544 (increase of 6.4 percent over last year)
2004-2005 Real GDP = 4479850 (increase of 8.35 percent over last year)
From above (Nominal and Real) GDP figures, you can see the effect of inflation and real increase in GDP.
Above figures shows that:
Inflation for the year 2003-2004 was 7.85 percent. Real growth 6.4 percent.
… Note: Multiply 1.064 (real growth) by 1.0785 (inflation) = 1.1475 or 14.75 percent (nominal growth) ]
Inflation for the year 2004-2005 was 10 percent. Real growth 8.35 percent.
… Similarly: Multiply 1.0835 (real growth) by 1.10 (inflation) = 1.1919 or 19.19 percent (nominal growth) ]
Over all nominal growth for two years (2003-2005) was 36.8 percent. Since exchange rate against the dollar did not changed during mentioned years (2003-2005), rather rupees became a bit stronger, Pakistan GDP in dollars increased as much as nominal growth rate, rather a bit more (or over 37 percent). During last fiscal year, that is 2005-2006, the nominal growth was again substantial (around 15 percent without rupees depreciating agaisnt the dollar) giving over all nominal growth for 3 years of around 57 percent in rupees as well as dollars.
That is the main reason we now have per capita income for year 2005-2006 of 847 dollars, big increase from per capita income of around 450 dollars when President Musharaf came to power (In terms of dollar GDP, the increase is much more then 100 percent, from around 60 billion dollars in 1999 to around 135 billion dollars in 2006).
This phenomenal increase over last 7 years is not because of all real increase but real increase is part of it along with increase due to inflation. Very high real increases and phenomenal increase in exports and other dollar earnings, all contributed to this increase in dollar per capita income (as both these factors kept the value of dollar from rising).
Thus, it is true that if inflation rate is high then nominal GDP increases a lot but that does not necessary mean that real GDP or GDP in dollar would increase in similar way. Though high inflation can contribute to GDP increase in dollar terms, but that is only possible if rupees does not get weak against the dollar. Rupees would not get weak if there is low inflation, high real growth rate and fast export growth (and other foreign exchange earnings).
Note: If Pakistan real growth rate stays high and exports keep increasing then there would come a time when due to inflation along with growth, Pakistan per capita income would be similar to the west and costs of most goods and services would be similar what one pays in west.
Legbreakgoogly: Regarding population growth, most quoted figures you will find as expected population of Pakistan in 2020 is just prediction. Most of the time, they are pessimistic then optimistic predictions. Regardless, it all depends on how population growth rate changes over time.
Past prediction of Pakistan population growth rate was 3.1 percent and expectation was for slow decrease in population growth rate. Hence, the expected population for year 2020 was too high (as you noted, around 250 millions).
As growth rate kept going down, expected population for year 2020 has also come down.
At present, Pakistan population growth rate is around 1.9 percent and if that growth rate stays until 2020, then expected population by year 2020 would be 208 million (If present population is 160 millions). Check the clock of Pakistan population figures (shows 157.5 millions).
http://www.statpak.gov.pk/depts/pco/index.html
If that figure (157.5 millions) is correct, and Pakistan population growth rate stays 1.9 percent then expected population for year 2020 would be around 205 millions.
Actually, I believe that Pakistan population growth rate would decrease further and thus, most likely Pakistan population would be much less then 200 millions in 2020.
Re: Economic growth question
Saleem,
Yaar your posts are excellent, with simply breakdown of sums for ppl like me. Thanks.
I hope your population figure is accurate, as it makes a huge difference in per capita income.
Re: Economic growth question
^^
Bhai, No problem. You are welcome anytime. Thanks for appreciation. As for the figures, it is not mine, it is what Pakistani data shows.
Re: Economic growth question
LBG, I dont know how Saleem reached that figure but if you take an average of 5% growth in real GDP of Pakistan, with a 2005 GDP base of 120 Billion USD, then by the end of 2020, Pakistan's GDP would be 249.47 {120 (Base GDP) x 2.0789 (multiplier obtained by compounding 5% growth over 15 years)}. If Pakistan's GDP grew by 6% over these 15 years the GDP would be 287.5 (120 x 2.396).
Also to calculate the GDP on a PPP basis is easy, just divide the GDP(PPP) by GDP(actual dollars) which will give you the purchasing power of the Pakistani Rupee. The INR's purchasing power is almost 5 times that of the dollar meaning you could by 5 times worth of products from 1 dollars worth of INR than 1 dollar itself (eg for 10 dollars you can get 1 haircut in the US but for 10 dollar worth of rupees you can get atleast 5 haircuts in India). PNR purchasing power is around 4 thus applying that multiple you could have Pakistan's GDP in 2020 on PPP basis would be 998 Billion USD (5% growth) and 1150 Billion USD (6% growth).
Re: Economic growth question
You guys have given radically different figs. I cant say I can work out a true answer, my maths sucks.
Q) How did you get 2.079 bro?
Re: Economic growth question
Aka: when a country economy grows by 5 percent, it does not mean that it is just 5 percent. It means that growth is 5 percent on top of inflation. Else, that 5 percent become meaningless.
Just imagine that a shop sells on average 20000 dollars worth of televisions every month, each is valued 200 dollars; that means shop sells 100 television sets on average every month. If after a year, television price goes up by 10 percent to 220 dollars (Inflation) and there is 5 percent growth in sale. Then, it does not mean that shop is now selling on average 21000 dollars worth of televisions (5 percent increase in last year sale of 20000 dollars), as that would mean that shop sells on average 95.45 television a month (as 95.45 multiply by 220 (new price) would be around 21000 dollars). If number of television sale reduced (from last year average of 100 sets to present 95.45 sets per month) then it will not mean growth but it would mean sale reduction (if happens in a country's economy, it is called economy contraction, not economical growth).
Thus, if there is 5 percent growth, it would mean, shop sale has increased to 105 televisions (5 percent growth in sale). Now, that 105 television at 220 dollars (inflationary increase or increase due to price rise), would be a sale of 23100 dollars.
[Though to fool ignorant and economical illiterates, some businesses might try to show growth inclusive of inflation]
Thus even though growth is 5 percent (TV set sale increased from 100 to 105), in dollars (or currency) term, the sale increased by 1.10 multiplied by 1.05 = 1.155 or 15.5 percent.
Same principle is true with countries. If country has 5 percent growth in GDP and 10 percent inflation over the year, then old GDP of (X rupees) does not increases to new GDP (X1 rupees) where:
New GDP = 1.05 (growth rate) times (Old GDP) rupees.
But New GDP would be:
New GDP = 1.05 (growth rate) times 1.10 (inflation rate) times (Old GDP).
Thus, if growth over next 15 years on average is 5 percent and inflation over next 15 years on average is 10 percent then:
New GDP after 15 years would be
Present GDP multiplied by (1.05^15) multiplied by (1.10^15).
Or
Present GDP multiplied by 2.0789 multiplied by 4.177
Or
Present GDP multiplied by 8.6842
[Note: figure 4.177 is also called economy inflator (as its origin is not real but only due to inflation]
Hope you got it.
Re: Economic growth question
Are you an economics major?
Re: Economic growth question
I get you Saleem, you have included the inflation rate along with the real growth rate to calculate the GDP. But the international norm is to calculate the GDP after discounting the inflation rate. That is why I counted the GDP assuming the real growth rate of Pakistans economy being 5 or 6% over the next 15 years. If you include inflation the picture becomes distorted and many countries with runaway inflation would show tremendous growth rate in GDP.
Re: Economic growth question
LBG, I got the multiplier of 2.0789 by compounding 5% growth rate over 15 years. Just like Saleem said if you have a scientific calculator you can calculate by (1.05)^15 or just multiply (1.05 x 1.05) 15 times if you have a normal calculator.
Re: Economic growth question
I see. As you can tell, stats/numbers are a big weakness. Intl relations is a major area of interest and the area of my academic study. Thus I need to know the basics, given the importance of economics to political realities.
Thanks both of you.
Re: Economic growth question
Impressive posts Saleem and others. :k:
Re: Economic growth question
Nice thread. I have a few questions too.
Why does inflation have to rise always? Is it important for economic progress?
Secondly, isn't inflation in Pakistan too high currently? For example, I have just come to know that one way bus-fare between Lahore and Islamabad has suddenly increased by more than Rs. 200. Is this trend healthy?
Re: Economic growth question
200 rp increase!
That I'd imagine is due to higher petrol costs, passing the extra cost onto the consumer.
Re: Economic growth question
For whatever reason. Mutton is now sold for Rs. 250 per kg. I remember, 5 years ago, it was less than Rs. 140 per kg. What is the reason for this inflation? Look at petrol, it has almost doubled in cost (from 33 to 58 something) in 5 years… 
Re: Economic growth question
That is shocking. Have wages gone up proportionally?
Re: Economic growth question
Yes they have gone up, but I am not sure if the increase compensates the inflation. Atleast my acquaintances living in Pakistan don't think so. In the latest budget, the minimum wage has been set to Rs. 5000. Atleast in that pay, one cannot afford the basic necessities of life.
Re: Economic growth question
5000 rupees a month as minimum wage.
That doesnt cover the basics?
Re: Economic growth question
Good question my dear Pharoah!
Reasons for inflation are many. However the dominant reason is simply the outdated outmoded supply-chain system of Pakistan (or Bharat, or BDesh).
This supply-chain is based on the worst possible form of monopolies including the monopoly of the government.
These monopolies do not force competition among suppliers, thus allowing them to set the price at their will.
Had the tax system been improved, the money earned by monopolies would come back in the circulation thus reducing the impact of continuously upward spiraling prices. But they don't.
Our businessmen hoard the materials, make astronomical profit, and then siphon off that profit oversees or underground.
It is time to break the monopolies (including Pak government's) chokehold on utilities, petrol, and essential food stuff include grains and sugar.
Unless we improve our supply-chain management, and our tax system, we will remain stuck in the vicious circle of "Mehangai" followed by more government interference, followed by even higher prices.
Re: Economic growth question
Antibol : Tu chup
Saleem : Tu bol