Pakistan Development Analysis

Location: Middle East

Population: 192,826,502

Relative Size: It is the 36th largest country in the world by area with 796,095 square kilometers.

Life Expectancy: 66.4 years old

Literacy rate: 60%

HIV infection rate: 0.1%

HDI ranking: 146 out of 187

Agriculture:

Natural resources include arable land and water. 25% of Pakistan’s agriculture accounts for 21% of GDP and employs about 43% of the labour force. Major exports include rice, mangos, cotton and chickpeas. Fishery and the fishing industry play an important role in national economy of Pakistan.

Manufacturing:

The capacity utilization was 83% for spindles and 47% for rotors. Textile and garment industry is the largest manufacturing sector.

Economic Problems

Pakistan has a low credit rating and thus many companies from around the world refuse to do business with them. They cite problems of corruption, lack of infrastructure and lack of resources. This has led to a problem of declining national exports.

A key characteristic of LEDCs is that it has high agricultural dependence. This is true for Pakistan.

Geography trap

Pakistan itself is surrounded by many other LEDCs and this has the effect of landlocking Pakistan. Pakistan is unable to conduct trading to a large extent.

Debt Issues

Pakistan has been slowly building up their debt and if the present rate of borrowing continues, the debt is set to reach $90 Billion in the next 4 years.

The Pakistani government have been borrowing money to fund fancy projects such as the Metro and highways.

Barrier to Economic Growth

Poverty Cycle

29% of the population live below the poverty line. This spiraling mechanism causes the poor to remain poor due to a lack of capital and credit to people.

Ineffective tax structure

The Pakistani Government has been collecting very little tax revenue despite raising tax levels. This has forced the Government to borrow money to fund their projects in infrastructure. Furthermore, the high level of taxation has also swept the population from most of their disposable income and thus there is low GDP growth and a negative net export.

Comparing Development

This graph compares the employment rate of males aged 15 and older in Singapore and Pakistan. The employment rate in Pakistan is higher than Singapore because men begin working at an earlier age in Pakistan compared to Singapore, hence why there is a higher percentage of employment. The life expectancy is significantly higher in Singapore compared to Pakistan as Singapore has higher standards of living and better healthcare.
This graph compares the literacy rate of adults in Pakistan and Singapore. Singapore has a significantly higher literacy rate compared to Pakistan as the education system in Singapore is more advanced and better quality. The sanitation levels are also very different as the standards of living in Singapore are extremely high compared to Pakistan.

Technology in Pakistan

Technology is a growing field in Pakistan that has played a role in the development of Pakistan since its founding. Technological advancements has opened many job opportunities and expanded the export industry.

Pakistan is often seen as a state with terrorism and instability. As a response to the fact that fertilizer was being used to make explosive devices by terrorists, a Pakistan-based fertilizer company is working on a new fertilizer that cannot be adapted into materials used for bomb-making.

Pakistan despite seeming like a struggling nation, in fact has one of the highest rates of cell phone usage in South Asia. Investments into 3G and 4G service in Pakistan represents a large portion of their total investments due to the large sum of money.

Access to Credit

As of March 2015, the US has launched access to credit for small and medium sized businesses in Pakistan. "The program partners USAID with four Pakistani banks: Bank Alfalah Limited, JS Bank Limited, Khushhalibank Limited, and First MicroFinanceBank Limited who will provide loan capital to underserved businesses to help them expand, create jobs and increase revenues." (USAID).

Female Empowerment

Female empowerment in Pakistan is not very prominent and has led to a loss in potential economic growth in Pakistan. According to the latest statistics, the current female population in Pakistan is 49.2 % whereas women participation in labour force is only 28%.

Growth of Domestic Industries

In the 1950s, due to lack of capital and entrepreneurship, the private sector was shy to expand. The government decided to take initiative and establish the PIDC to invest in industries that require heavy initial investment. The share of the industrial sector rose from 9.7 to 11.9 percent in one decade.

Family Planning

Despite the considerable demand for family planning in Pakistan, the government has neglected it. In 2002, the government's policies began reflecting their concerns towards the population growth and the policy's goals include reducing fertility through family planning and increasing contraceptives.

International Factors

Export led policy and Import Substitution policy

Export led policy is a policy in which the government aims to try and boost GDP through an increase in net exports. There are several ways this can be achieved. Firstly, trade liberalization is an effective way to increase net exports, as by building stronger relations with other nations; the nation will benefit from augmented levels of trade. Another way to do so it through subsidizing the exporting firms as this would reduce their costs of exports.

Import substitution is another way to achieve economic growth and this is done through reducing the level of imports and increasing domestic consumption. This can be achieve through protectionism such as tariffs or quotas. By reducing the country's level of imports, the net level of exports would increase, which is a factor of Aggregate Demand. Furthermore, consumers would have to switch to domestic consumption due to higher costs of imports.

Since 2000, Pakistan has turned towards export led policy and led to 2.7 times increased GDP, which is fairly low compared to other countries such as Cambodia, India and Bangladesh. Pakistan also drastically reduced import tariffs and signed a Free Trade Agreement with China in 2006. This was a mistake as soon, Pakistan's imports surged and outstripped their exports, setting them in a huge balance of payments crisis.

Specialization

Pakistan is specialized in Textiles and the export value is worth $15.5 Billion USD. Second closest to this is Vegetable products, which has an export value of $3.56 Billion USD.

Comparing impact of Price and how it affects GDP

As illustrated in the graphs of GDP and commodity prices, rising prices of Crude Petroleum has led to rising GDP of both Iraq and Angola. Specifically, in 2008, when prices of Crude oil drastically decreased, it is evident in both the GDP graphs of Iraq and Angola.

Growth and Development Strategies aimed at Increasing Trade

Import Substitution: This would not be a very good method for Pakistan to increase economic growth as Pakistan is very specialized in the textile industry and not much in the other sectors. If Pakistan were to use protectionistic measures to reduce imports, it would not have much of an effect on the level of demand and only the consumers would be worse off facing higher prices. If Pakistan was less specialised, then perhaps this might be a suitable measure to increasing economic growth.

Export led: This is the current policy that Pakistan is pursuing although not getting the results that they hoped for. Compared to other nations who are also relying on this, Pakistan has only achieved a mere 2.7 times increase in GDP. Because Pakistan is specialised in the textile industry and it is their main export, this would be the most suitable policy to try and boost Pakistan's net export. However, the prices of Textiles are somewhat volatile and it may affect the overall GDP of Pakistan.

Foreign Direct Investment

In the years 2015-2016, Pakistan has experienced an inflow of $600 million from China and thanks to this, they have experienced a surge of 38.8% in FDI.

Pakistan received FDI of $1281.1 million in July-June and with other countries pulling out, China has increased its FDI as part of the China-Pakistan Economic Corridor (CPEC).

Pakistan is a net receiver of economic aid and has many sources of aid such as loans and grants. The International Monetary Fund (IMF), World Bank (WB), Asian Development Bank (ADB) all provide long-term loans to Pakistan.

Bilateral aid is a type of developmental aid between two countries. Pakistan receives this from developed and oil-rich countries such as the U.A.E.

The World Bank provided a lending program of up to $6.5 billion for Pakistan under a new four-year aid strategy with a drastic increase in funding aimed largely at improving the country's infrastructure. This is largely beneficial as Pakistan's infrastructure is not particularly strong.

The stakeholders in this are firstly the consumers. By improving the infrastructure, consumers may benefit from higher standards of living such as increased healthcare and education. Investment into highways may also speed up travel times and benefit the population.

Furthermore, the CPEC between China and Pakistan has had a massive impact on Pakistan. The CPEC is being developed with $46 billion of Chinese loans and grants and this large sum of money could be used to increase economic growth in Pakistan by investments into infrastructure, subsidising the export industry to support the export-led growth of Pakistan's textile industry. However, some disadvantages of this could be that China could be exploiting Pakistan. China has a much stronger economy and their exports cover a wider range of goods and services. The CPEC may actually decrease the net-exports of Pakistan and improve China's net export as China could be flooding Pakistan with their exports.

AID

Aid is economic assistance from one country to another. Usually aid refers to assistance from the developed world to LDCs.

Pakistan has received aid from the US to assist their new government in areas of stability, security and development. The name of the aid is known as USAID and recently, they have signed an agreement valued at $8.4 million dollars to help ease the food crisis.

This graph illustrates the quantity of USAID Pakistan has received and divided into amongst its economy. From the Figure, it can be clearly seen that in 2010, Pakistan has received the largest sum of aid and majority of it was used for Education and Economic development. A common trend in all the figures is that Pakistan uses a majority of it to increase Economic Development.

Debt

National Debt of Pakistan

Pakistan's currency reserves have grown at a tremendous rate. Excellent fiscal management and governance reforms have improved Pakistan's credit rating. With lower global interests, these factors have enabled Pakistan to prepay, refinance and reschedule its debts to its advantage

Experts are optimistic despite the large sum of external debt. According to Mervyn Tang, lead analyst for Pakistan at Fitch Ratings, Pakistan’s external liabilities are relatively small, foreign-currency reserves have risen, the IMF is ready to help meet loans and Chinese investment in the CPEC is on its way.

Pakistan should have entered the danger zone in late 2016, however, oil prices have provided a grace period for Pakistan and barring any dramatic changes.

The danger zone really starts in 2018.

  1. The grace period of the current IMF loan of $6.6 billion comes to an end in 2018.
  2. Repayment of CPEC commercial financing may reach a high level.

Conclusion

All things considered, Pakistan is a developing country who has experienced increased economic growth in the past decade due to stronger international relations and foreign support.

Pakistan has attempted to increase economic development through export led growth, however, this has not had the intended effect as Pakistan has the lowest economic growth out of all the countries who pursued it as well. Pakistan's main export is textiles and the high volatility of the prices leads to uncertainty and fluctuations.

Furthermore, in the recent years, the CPEC between China and Pakistan has greatly boosted Pakistan's economy. The large sum of grants and loans from the Chinese has allowed Pakistan to invest in infrastructure and fund education.

On the contrary, Pakistan should strive to implement woman into the workforce to further boost economic growth and reduce the level of poverty.

Created By
Justin CHIU
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Credits:

Created with images by DVIDSHUB - "Pakistan Disaster Relief" • DVIDSHUB - "Pakistan Flood Humanitarian Aid"

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