IS there a difference between economic growth and development? Can the size of an economy grow manifold, without a corresponding improvement in its development indicators or in the socio-economic outcomes for the citizens? This question has assumed relevance once again for Pakistan as it receives strong endorsements and accolades from a wide variety of international sources for its recent economic performance and its medium-term prospects.
The Wall Street Journal, in a recent piece, finds that Pakistan’s middle class has “soared” as stability returns. “Pakistan’s economy is a pleasant surprise” writes Tyler Cowen for Bloomberg. Barron’s, an eminent US financial magazine, tells investors to “Forget India, Its Neighbours Are the Next Big Thing”. Global professional services firm PricewaterhouseCoopers lists Pakistan as the 16th largest economy in the world by size in 2050, from 24th currently. Several years ago, then Goldman Sachs chief economist Jim O’Neill (the originator of the term BRICs) had included Pakistan in the list of the ‘Next-11’ emerging markets to look out for.
The foregoing is a sampling of some of the recent articles on Pakistan. While many have a narrow perspective of looking at Pakistan through the prism of potential above-average returns in the country’s stock market, others are taking a long view with regard to the potential expansion in the size of its GDP. In this context, it will be instructive to look at Pakistan’s long-term growth performance, and see what lessons can be drawn.
Despite many interruptions, and barring the sharp slowdown since 2008, Pakistan’s economy has delivered fairly strong growth in the long run. True, progressively from the 1990s onwards, the growth rate has been significantly lower, less stable, more volatile and far less sustained than the fast-growing economies on the block: first China, then India and Vietnam, and now, potentially Bangladesh. Nonetheless, Pakistan’s GDP as measured in current US dollars (used purely for the sake of convenience and ease of comparison) has more than doubled since 2006, and expanded over seven times since 1990.
Economic growth is not a sufficient condition for development.
On the positive side, this expansion in the size of the economy has lifted millions out of poverty and created a large middle class. But have Pakistan’s overall development indicators improved correspondingly? In terms of size of economy, the country’s global rank improved from 47th in 1990 to 39th over this period (Pakistan is the 24th largest economy in the world on a purchasing power parity basis). However, its global ranking based on the UN Human Development Index has slipped from 119th to 147th. There are an estimated 83 million people facing multi-dimensional poverty, over 70m facing food insecurity, and an estimated 6m children out of school. The country’s spending on education is the 172nd highest in the world, while public expenditure on health ranks it one above the bottom (at 187th). Not surprisingly, there are 116,000 Pakistanis for every hospital bed in the country, according to UN statistics. There have been improvements in some aspects, such as the adult literacy rate and infant mortality, but these have been modest and generally lag far behind most fast-growing developing countries.
In short, there is a stark and deep disconnect between Pakistan’s growth performance since 1990 and its progress in terms of socio-economic development. In fact, this disconnect has persisted since much earlier, as noted by William Easterly’s seminal 2001 paper on the political economy of “growth without development” in Pakistan. It is a result of an inferior “quality of growth” whereby economic growth does not emanate from processes that make it more sustainable or durable, or make it as inclusive. More fundamentally, this disconnect arises from a lack of a national development paradigm, which has resulted in an over-reliance by the country’s policymakers on GDP growth alone to take care of most development challenges.
An interesting contrast is offered by Iran. Since the Islamic Revolution in 1979, Iran’s rank in the Human Development Index has risen from 142nd to 69th, with the adult literacy rate increasing from 36 per cent to over 84pc. Similarly, infant mortality has been brought down from over 44 per 1,000 live births in 1990, to 14.4 as of 2013. These improvements have occurred despite a crushing eight-year war imposed by the US and its allies, followed by years of sanctions during which Iran’s economy suffered badly. Nonetheless, despite a lower rate of GDP growth than Pakistan’s, Iran’s development outcomes are far superior. Whatever the drawbacks of theocratic rule in terms of restriction of personal freedoms, purely in terms of a development focus, the Iranian regime has done a far better job than Pakistan’s rapacious, westernised elite in delivering for its people.
Even in terms of their almost exclusive focus on GDP growth, Pakistan’s policymakers have done little over the past 30 years to build a more solid framework for durable, sustainable, inclusive economic growth. The country’s domestic savings and investment rates are a fraction of what is required to foster sustained growth. Pakistan’s small export sector, relative both to the size of the overall economy as well as relative to its peers, has shrunk even further. Not a single dynamic developing economy in the past 40 years has lifted itself to a higher development level based on any other strategy than an export-led one.
Instead of building a solid foundation for long-term growth, based on improving outcomes in education and health among other priority areas, and one that translates into economic development for all regions and all Pakistanis, the current crop of policymakers appear to have outsourced the country’s long run development strategy exclusively to the China-Pakistan Economic Corridor. While CPEC is likely to deliver a growth impulse, if done right, without focus and effort on improving Pakistan’s development outcomes, the country is likely to repeat history by recording higher rates of economic growth (for short periods) simultaneous to a broken public education and health system. Without fixing the pre-requisites of economic development, higher, sustained and inclusive growth is also likely to remain elusive.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.
Published in Dawn, February 17th, 2017