So where is the 8% growth going?

Society Pakistan & World Affairs
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May be some of the economic gurus would help me out in this one, the economy is growing on rapid pace:alhamd:, “people” are making more money, ultimately they will have more purchasing power, they will buy stuff, more stuff would be imported or even produced so the over all picture of the economy is good, people are making money. Isn’t this what a good economy is, or may be you can enlighten me.

Now, how do you channel this wealth in making the life of the people easier, their daily lives less dangerous and secure. May be through making more Hospitals, schools, police stations, Water facilitiies. Assuming that the state has given the private sector the responsibility for hospitals and schools so the rest would be the states responsibility, am I right.

Now the main question is in a city Like Lahore with almost 7 million people, Have you seen any new police stations, a new traffic light, a garbage collection system. In a city where the car is used less than 15% for travel and only around 25% of households own a car, don’t you think that you should have a public transportation system. So where is all this wealth going generated by the 8% growth rate?

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Re: So where is the 8% growth going?

growth comes either from consumptiun, either from investment, either from exportation

pakistan is not so much exporting, not so much investing, but more consuming thanks to easier loans...

that may be an explanation...

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Re: So where is the 8% growth going?

Exports have almost doubled in last 6 years, use to be around $9B now $17B

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Re: So where is the 8% growth going?

You're assuming that the 8% growth is in government revenues... which I'm sure it's not, given how Pakistan is capitalist rather than socialist.

Much of the economic growth is being sunk into private property such as land, as the rapidly escalating land prices in Pakistan testify. The growth is being invested rather than spent.

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Re: So where is the 8% growth going?

Mm: There is a hsitoric parallel with Ayub Khan and Zia..strong economic growth that didn't translate into grass roots socio-economic change..the reason is simple growing crony capitalism and increasing economic disparity. In economic terms this year will be the worst since 2000, all the budget deficit targets have almost been abandoned because of massive waste by Mushs government, foreign debt post quake will be returning to the same levels it did in 1999 and internal debt has risen sharply under Mush, the export boost has been wiped out by a record trade deficit and the pressure on our forex reserves will increase significantly once the foreign owners of PTCL etc start repatriating their profits from sales in Pakistan.

But lets talk even simpler ..Pakistans problems have never been only economic ..Pakistans problems are moral.

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Re: So where is the 8% growth going?

Where that high growth is going? A good and fair question and I believe that many are genuinely confused regarding how to answer or explain it. Anyhow, I will try my best to try to explain things as simply as possible.

Nation can become poor much faster then they become rich. Nations become rich and affluent very slowly as it take ages of hard work, good policies, direction, visions, governance and determination of people running the country.

Other thing to remember is that, for a country to maintain same standard of living, economical growth has to match population growth.

There is two type of GNP per capita. One is real or at constant price (after adjusting for inflation) and other is current (without adjusting for inflation). Its like, if A’s earning increased by 10 percent and inflation is 8 percent then current increase in earning would be 10 percent but real increase in earning would be 110 divided by 108, or 1.85 percent. If earning increase is 10 percent and inflation is 12 percent then even though current earning has increased by 10 percent but real earning has decreased to 98.21 percent of last year, and thus now we would need 1.81 percent increase to get back to original level. Thus, the actual growth that matters is real growth.

For Pakistan: I am using real growth in rupees; that is rupees worth for the year 1999-2000 (that means the value of rupees purchasing power in Pakistani market during 1999-2000).

In 1987-88 (last year of Zia-ul-Haq), per capita income at constant price in ‘rupee worth for year 2000’ was Rs 23805

In 1998-99, per capita income at constant price in ‘rupee worth for year 2000’ was Rs 26907.

So average Pakistani became better off by Rs 3102 or by 13 percent better off in 11 years (that is an increase of 1.12 percent a year). It means that if a person that was earning 4000 rupees in 1987-88 would be earning 4512 rupees in 1998-99 (with no inflation and thus prices are all same). Remember that it is average and that means that some are better off much more then others and some might have gone worse off.

In 2001-2002, per capita income at constant price in ‘rupee worth for year 2000’ was Rs 28015. That was an increase of 4.11 percent over 3 years (from 1998-99 to 2001-2002) or annual increase of 1.35 percent (this was the earlier President Musharaf ear when government was trying to consolidate Pakistan shattered economy rather going for growth).

In 2004-05, per capita income at constant price in ‘rupee worth for year 2000’ was Rs 32032 and for the year 2005-2006, provisional real per capita income, that is at constant price in ‘rupees worth for year 2000’ will be 33320.

So over last 4 years, from 2001-2002 to 2005-2006, real per capita income in rupees (rupees worth for year ‘2000’) increased by Rs 5305 or 18.94 percent (average increase of 4.45 percent a year).

Now let take a practical example. Suppose if a person is earning 27000 rupees and another is earning 33350 rupees. Now think the difference in life and living standard of those two and realize that, that is the difference between life standard of an average Pakistani between 1999 and 2006 (in last 7 years).

To realize the difference between 1.1 percent increase and 4.5 percent increase over let say 50 years.

If per capita income increase would be 1.1 percent over next 50 years then present real Rs 33320 per capita would increase by 72.80 percent, or would become Rs 57578 (in rupees value of year 2000).

If per capita income increase would be 4.5 percent over next 50 years then present real Rs 33320 per capita would increase by 803.26 percent, or would become Rs 300967 (in rupees value of year 2000).

[Note ... Just for example: USA real per capita income is around 10/11 times more then Pakistan. To get to USA present level of per capita income, Pakistan per capita income has to grow by 4.5 percent over next 55 years. If corrupt government would take over again then we will start going behind rather would be trying to catch. In reality, USA per capita income is also increasing by around 2 to 3 percent and that means to be equal to USA, it would take 150 years of 4.5 percent per capita growth. It would be much earlier if Pakistan population growth stops and economy start growing at around 10 percent a year]

That means, increase of 4.5 percent a year over 1.1 percent a year, would make an average Pakistani over five times better off in 50 years. One thing to remember is that, the increase over short period is so little that it is not easy to see it unless one knows how to see it.

Anyhow, just give you an example and show you how to see this growth (without looking at figures but real life on the road).

With faster growth, consumption would increase faster. What is happening in Pakistan? Pakistan is experiencing huge increase in sale of car, motorcycle, air-conditioner, fridge, freezer, television, telephone (mobile and landline), computer etc. Pakistan is also experiencing huge increase consumption of cement, sugar, electricity, gas etc. [Note: some demean that by saying that credit is easy to get now. One should remember that bank do not give credit to people that cannot pay back. So those who are buying are those who are able to buy].

Today, consumption is increasing faster then industry can cope. Pakistan is experiencing shortage of cement when their production has more then doubled during last 7 years. By end of this year, further increase would double the cement production again. Steel, sugar, electricity or gas, market is experiencing shortage in most things even though production (or availability) has increased].

Booming economy also bring increase in Property prices and Stock market index. Pakistan has out performance stock market of any country in the world, increasing by over 900 percent (from 1200 to now 11000). Increased consumption has increased most companies profit and that is reflecting in stock market. Property prices have also increased a lot.

Export, that was stagnant for decade at around 8 billion dollars before Musharaf came to power, has increased to around 17 billion dollars. Note: Pakistan export during 1998-1999 was 7.8 billion dollars and in last 7 years, it reached 17 billion dollars. Pakistan import (that shows increasing consumption) also increased from around 10 billion dollars to 28 billion dollars today.

Historically, Pakistan foreign exchange reserve that never went over 3 billion dollars is now standing at over 13 billion dollars. On average, Pakistan use to have no more then 6 weeks import worth foreign exchange reserve and today Pakistan reserve can cover 6 months of import.

Tax collection figures can show the state of economy too. In 1998-1999, Pakistan federal tax collection was 308 billion rupees. This year (2005-2006), Pakistan tax collection target was 690 billion rupees but expected actual collection is 710 billion rupees.

Anyhow, booming economy has one disadvantage. Those who are lazy or those who cannot adjust to the demand of increasing economy see people around them getting better off then them and that can create depression in them. But regardless, in the long run, all benefit.

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Re: So where is the 8% growth going?

very well written Saleem, however I disagree on some key points ..one is yes there has been a boom in predominantly service sector side..the reality is there are very deep structural flaws in Pakistans economy..and those will be not be resolved without major shift in focus of public spending..reducing government spending and waste..increasing investment in infrastructure and socio-economic issues...as I've said a million times ebfore it doesn't matter how big the cake is but it's how it's cut..it is the inequality of the cutting that creates resentment and ensures infrastructure can't keep up with growth..

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Re: So where is the 8% growth going?

Looks like Pakistan is heading back to the basket case it crawled out of? I hope not, but from what economists are saying, the govt policies arent working.. Bubble is going to burst.

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Re: So where is the 8% growth going?

Are you quoting economists on payroll of thug raja (NS), crook rani (BB) and their corrupt stooges?

[quote]
Looks like Pakistan is heading back to the basket case it crawled out of
[/quote]

Are these economists expecting those crooks to come back to power again?

Anyhow, I believe that you are right too because this bubble could easily burst if those two crooks or similar crooks come to power in Pakistan again.

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Re: So where is the 8% growth going?

[quote]
Zakk: very well written Saleem, however I disagree on some key points ..one is yes there has been a boom in predominantly service sector side..the reality is there are very deep structural flaws in Pakistans economy..and those will be not be resolved without major shift in focus of public spending..reducing government spending and waste..increasing investment in infrastructure and socio-economic issues...as I've said a million times ebfore it doesn't matter how big the cake is but it's how it's cut..it is the inequality of the cutting that creates resentment and ensures infrastructure can't keep up with growth.
[/quote]

Zakk Thanks.
Anyhow, you are wrong in saying that boom is predominantly in service sector. Actually, major component leading to high Pakistan economic growth is coming from Industrial/Manufacturing sector. Here are figures of different sector growth rate:

2002-2003
Real economical growth: 4.84 percent
Agriculture growth: 4.15
Industrial/Manufacturing growth: 6.90
Services growth: 5.22

2003-2004
Real economical growth: 6.42 percent
Agriculture growth: 2.19
Industrial/Manufacturing growth: 14.06 (highest ever growth)
Services growth: 5.97

 2004-2005

Real economical growth: 8.35 percent
Agriculture growth: 7.46
Industrial/Manufacturing growth: 12.47 (6th highest ever growth)
Services growth: 7.89

Pakistan list of financial years with high industrial/Manufacturing growth (over 11 percent):

1953-1954: 13.04 percent (4th)
1954-1955: 12.39 percent (7th)
1960-1961: 12.88 percent (5th)
1961-1962: 13.30 percent (3rd)
1962-1963: 11.20 percent (10th)
1963-1964: 11.36 percent (8th)
1969-1970: 11.33 percent (9th)
1981-1982: 13.75 percent (2nd)
2003-2004: 14.06 percent (highest ever)
2004-2005: 12.47 percent (6th)

Expected Pakistan real economy growth this year (2005-2006) is 6.7 percent. I believe that industrial growth for this year could be above 11 percent again. Let see what actual figure would come in June.

[Surprisingly, all of them came during military rule except during earlier years (1953-1955) when little advancement in industry meant high growth. This growth (1953-1955) was mostly result of Korea war (1950-1953), when Pakistan benefited a lot due to Jute export, earning plenty of dollars, resulting in investment and growth in industry].

We have to realize that industrial growth during earlier years was on low base and thus, little growth could have given a high percentage. If industrial output of a country is 100 dollars then to get 10 percent growth, one needs to increase the output by 10 dollars. On the other hand, if industrial output of a country is 1000 dollars then to get 10 percent growth, one need to increase the output by 100 dollars.

That is the reason; to get high industrial growth in industrialized world is very difficult. So if Pakistan is having such a high industrial growth rate now, it is more commendable then the growth in the past. Regardless, Pakistan is still an underdeveloped country, and thus there is plenty of scope for high industrial growth. Probably a time would come when backbone of growth would be mostly services.

As what you wrote:
[quote]
as I've said a million times ebfore it doesn't matter how big the cake is but it's how it's cut..it is the inequality of the cutting that creates resentment and ensures infrastructure can't keep up with growth
[/quote]

Well, if there is no cake or a small piece, none can get anything. We can only talk about having cut when there is cake. Pakistan unfortunately has little cake to cut and what poor are getting may not be enough, but with such a small cake, they should pray that size of cake increases else there wont be enough to share anyhow.

We also have to realize that in any world economy, there are group of people (enterprising people) who are engine of development. In present world, when most countries are trying to attract these people (If a person is amongst those people, many countries would give that person immigration and would facilitate that person. Banks bend backward to give them loan and countries make policies friendly to them). To keep them within country and give them opportunity is the only way to increase the cake. Else, cake would stay small and there would be little or nothing to share.

Z A Bhutto scared them away and Pakistan suffered, resulting in low growth and increase in poverty, even when it is believed that this was not his intention. Corrupt politicians also scare them away because their policies do not encourage investment or care for development. They only like to create opportunities for looting, plundering, commissions and bribes. When these crooks are in power, only those can do anything in Pakistan who are their partners, know them or bribe them. Incompetent take over the country and competent having no opportunity, leave the country or stay unproductive. Result: these people, who could be engine for the development of the country, feel reluctant in investing within the country or starting new businesses, rather many even leave the country.

Regardless, Pakistan wealth distribution or share of bottom 20 percent with respect to top 20 percent is much better than most countries (better then India, China, Indonesia and almost all of Africa/South America amongst poor countries AND better then most industrial rich countries like USA, UK, Canada, France, Germany, Japan, Italy etc too). I would give the credit for that to ‘Islam’ that encourages people with wealth to share with others. That is the reason Pakistan leads countries in charity giving (not in absolute terms but in terms with respect to economy)

As for infrastructure: It is easy for infrastructure to cope with unequal distribution of wealth then when wealth is equally distributed. Just imagine that if due to unequal distribution of wealth, only one million people have cars then road would have no problem coping with that. On the other hand, if due to better wealth distribution, there are 2 million cars in similar economy then extra roads would be needed to cope them.

Well, demand on infrastructure increases when more people would need that infrastructure and would want to use it and people would only demand good infrastructure and would want to use it if they would have enough income to use it.

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Re: So where is the 8% growth going?

Shahid Javed Burki is among those who say that the economy is heading in the wrong direction… He isnt alone, many are starting to fear the same…
And unfortunately, im starting to agree… I havent seen any sign of the kind of growth we need. Inflation rising, political instability, increasing import bill due to increased imports, the foreign exchange has stopped rising and the govt may have to dip into it to pay for the import bill, as well as the fact that the tax base is still low… I hope for the best, but things are looking bleek at the moment.

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Re: So where is the 8% growth going?

People like Imran Khan are real morons for saying that common people are not benefiting from this economic growth..its the common people who are earning more and spending more.Consumption is up in Pakistan,people are buying more cars,people who had bicycles in rural areas are now buying motorcycles....automobile industry is experiencing great growth.Restaurant is business is up, macdonalds is doing more business than ever in Pakistan, another indication that people are spending more.Unemployment rate has come down quite a bit from the time of nawaz sharif and benazir.Its not that easy to find labor now for garment factories and their wages are up.However,inflation is going up which is mainly due to high oil prices so you can not blame the govt for that.Also that tends to happen when an economy grows and unemployment rate comes down.

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Re: So where is the 8% growth going?

Sa1eem brilliant posts, thank you for sharing interesting analysis, with details

Let's Play 1 2 3...
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Re: So where is the 8% growth going?

Great posts Sa1eem, love your constructive posts with full of fact based information :)

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Re: So where is the 8% growth going?

Well said PP.

However there are two important steps to cure these ills.

  1. Internally: Overhaul the darned antiquated tax system. Tax collection is just horrendous. During my visits to US, I see Uncle Sam gives back tax refunds in 6 months. In Pakistan our tax office never sends tax refunds. Also the tax rates must be updated. We give $million subsidies to all kinds of issues. Those subsidy must be linked to the tax returns submission by the recipients.

  2. Externally: Get more defense projects (contracts) from Uncle Sam. Iraq and Sudan are two quick examples. Sending out 20K troops on such missions will bring $$billions.

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Re: So where is the 8% growth going?

An interesting article on this issue:

Monitoring development spending

NATIONAL Economic Council (NEC) has revealed that in the nine months of FY 05-06, of the Rs204 billion earmarked for the July-March period under PSDP, only Rs103 billion were utilized.

A more startling observation by the Annual Plan Coordination Committee (APCC) is that, on the average, mega projects utilised just 18 per cent of the allocation in the first year of their construction phase.

The Planning Commission, however, is of the view that FY 05-06 development outlay may actually exceed the figure of Rs103 billion because expenses are booked in public accounts (and contractors paid) with a lag of two to three months. In this backdrop, the allocation of Rs350 billion for FY 06-07 PSDP, although very welcome, doesn’t build much hope about higher utilisation and economic yield from this allocation.

Under-utilisation of development funds shows yet again the laidback style in which government and its agencies manage development. The fact that year after year, a large part of PSDP funds remain unutilised while we ceremonially keep pointing to deficiencies in the infrastructure manifests a dangerous tendency – accepting as an irreversible reality the government’s recurrent under-performance in this area.

In 2005, it was claimed that the concept of ‘management by objectives’ had firmly been embedded into the administrative philosophy and the practice of quarterly performance review of all federal ministries and agencies had been institutionalised. But ground realities manifested by lacklustre development effort don’t confirm this claim. Explaining poor performance in the context of bureaucracy’s incapacity is a weak defence.

Bureaucrats have the capacity to deliver but only if those who carry that responsibility, are held accountable and their incompetence, and all else that stopped them from delivering. Retaining under-performing bureaucrats in positions of power and forcing the nation to suffer because of their incompetence would be wholly unforgivable. In an election year, a widely held perception such as this could have serious implications for the party in power.

What need to be investigated at the highest level are the factors that prevent fuller utilisation of development funds, which in any case, are never enough to plug the gaps in the infrastructure. Given the galloping rate of growth in population (one of our many claims to fame) these gaps are rapidly expanding. If we continue to overlook failures in managing development, these gaps could reach catastrophic proportions in not too distant future.

Two critical managerial deficiencies need addressing: the way we identify the development priorities (and re-prioritise them in the light of fast-changing realities) and standby strategies to face up to scenarios that develop if projects freeze in their tracks (like the big dam proposals now), or take longer than their estimated completion time? These aspects should be inquired into because some crippling infrastructure gaps that we confront now, should have been addressed long ago.

Take, for instance, our failure to discover enough indigenous reserves of fossil fuel and building the network for their transport to consumption centres to cut our dependence on imports. This oversight is unforgivable in view of the fact that, for nearly a decade-and-a-half, everyone was aware of the inadequacy of power generation and its steadily rising demand.

News is that the controversial big dams may yet be constructed but it will take another three years to complete the crucial pre-construction investigative work that make any dam a lasting success. Thereafter, will commence construction, and there is no way of knowing how many disruptions therein will extend the projected timeframe of construction.

With experience of Tarbela Dam still fresh in our memories, the prospects don’t seem promising and the question about, “what do we do in this uncertain interim period” remains unanswered.

Escalation in the price of oil was inevitable even before US invasion of Iraq (and disruption of supply of nearly two million barrels a day) because impact of rising consumption in China and India became visible since the early 1990s.

The scenario worsened after US invasion of Iraq, and would become unmanageable if the US invades Iran. Given the continued failure of the EU to find a seemingly credible route that satisfies the elongated egos of both Iran and America (and of course, Israel) disruption of supplies from Iran appears a possibility.

Should that happen, how shall we manage the supply gap at its then price, given the already high deficit in the balance of payments? Can such an arrangement sustain the competitiveness of Pakistan’s exports even at their current level? These are relevant questions but it is unlikely that the strategy the government has in mind will be clever enough to face this scenario without destabilizing the economy and the country’s fragile social order.

The recent decisions of the government to permit installation of wind energy and drip irrigation system make sense but the decision has come too late. The reason is not the late discovery of the alternative; it was on the table for years but the busy policymakers couldn’t assess it quickly enough. This approach to managing critical development priorities must be checked to stamp out a laidback attitude to examining alternatives.

Whether it has to do with a traditional mindset that under-rates adoption of new technology, sheer lethargy, or a belief that adopting an idea is a favour to the initiator of the idea (and therefore deserves a favour in exchange), must be investigated. This attitude (which, it seems, was ever-present) slowed development work in critical areas at a tremendous cost to the country in social and economic terms including its break-up in 1971.

Not surprisingly therefore, Pakistan has remained a developing country for decades while countries like China, Taiwan and **South Korea that lived through conditions worse than those inherited by Pakistan in 1947, have become economic powers. In fact, South Korea is a country whose pioneering industrial workforce was trained in Pakistan way back in the 1970s, at the Pakistan Machine Tool Factory in Landhi.
**
What Pakistan faces now is one of the toughest period of its existence. In the past five years, through our oft-repeated gleeful references to ‘high growth’ (without caring to plan for sustaining it under the changing global political and economic scenario) we have built up a mountain of expectations.

Policymakers need to speed up the process of examining and implementing projects for storage of water and generating energy from technology that is based on cost-free or indigenous inputs.

Adequacy of water supply and power generation must be our top priority. If we can ensure uninterrupted supply of these vital inputs, we will sustain self-sufficiency in food and keep the wheels of the industry rolling to save time and resources for attending to the crying needs of the social sector. If, however, this does not happen, we will face a multiplicity of problems that we may find impossible to handle.

Economic planners must realise that their failures have a cost not just in economic terms but far more important social terms that can destabilise societies to a point where all political alternatives put together may not work. We have suffered immensely precisely because of bad, worse still skewed development priorities should know this fact more than anyone else.

http://www.dawn.com/2006/05/29/ebr1.htm

 
Apparently Emirates Airlines management staff was trained by PIA many years ago and look where they are now (we all know where PIA stands today).
Nawaz Shariff trying to Break Pakistan
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Re: So where is the 8% growth going?

Thanks Saleem for ur nice post.

North South East West
:jhanda: is the Best

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Re: So where is the 8% growth going?

How many common men are really benefitting?

Povery rate is close to 50% now, if income went up prices of daily use commodities went up as well bigtime. No doubt things are getting better but its just the age old story that is being repeated in pak as well: the rich are getting richer, the poor poorer.

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Re: So where is the 8% growth going?

Shahid Javed Burki was also of the opinion that Nawaz Sharif was the only solution to Pakistans economic problem back in 1996-97, and they even made him the minister for a brief period during the transition. I respect him because he wrote some nice books, and is on a high ranking position these days, but the man does have some political preferences which is why he will never appreciate anything coming out of Pakistan at present.

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Re: So where is the 8% growth going?

Not true. The 80s is known as the lost decade for Pak's economy, a period in which other countries were rapidly growing while we were involved in the Afghan conflict.