Balochistan falls behind

Balochistan is the smallest province of Pakistan, with a share of 6.2% in the national population, according to the 2023 Population Census. However, it is geographically the largest province with a share in the national land area of 43.6%.

The appointment of Anwaar-ul-Haq Kakar as the caretaker Prime Minister, based especially on the fact that he is from the smallest province of Pakistan, provides an opportunity to highlight the performance of the economy of this province over the last two decades and the extent to which it has fallen behind.

Research undertaken by the author on the size, composition and growth of the four provincial economies provides insights into the extent to which Balochistan has fallen behind since 1999-2000. Table 1 presents the ratio of the per capita Gross Regional Product (GRP) of each province with respect to the national per capita GDP in different years.

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                           Table 1
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Ratio of Per Capita GDP by Province to National GDP per Capita
             (National per Capita GDP = 100.0)
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                         1999-2000      2014-15        2021-22
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Punjab                      98.6          99.5            99.8
Sindh                      128.8         129.9           129.0
Khyber-Pakhtunkhwa          71.3          77.0            86.2
Balochistan                 75.3          51.3            44.0
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The worrying finding is the big decline in the ratio of per capita GRP of Balochistan with respect to the national per capita GDP. The former was approximately 75% of the national average in 1999-2000. However, it is estimated to have fallen to only 44% by 2021-22.

The table also indicates that the per capita GRP of Balochistan was higher than that of Khyber-Pakhtunkhwa in 1999-2000. However, over the years the latter province has caught up and now has a per capita GDP almost double that of Balochistan.

Clearly, the fundamental reason is the variation in the long-term growth rate of the four provincial economies. The UNDP Human Development of Pakistan for 2020-21 has highlighted the average annual growth rate of the GDP of the four provincial economies as shown in Table 2.

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          Table 2
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Provincial GRP Growth Rates
    1999-2000 to 2018-19
===========================
                          %
Punjab                  4.2
Sindh                   4.5
Khyber-Pakhtunkhwa      5.0
Balochistan             2.1
===========================
Source: UNDP
===========================

Therefore, while Balochistan has lagged behind with a growth rate of only 2.1%, significantly below its population growth of 3.2%, the province of Khyber-Pakhtunkhwa has emerged as the most dynamic economy since 1999-2000.

The UNDP Human Development Report has also quantified the Human Development Index of each province. The estimates are presented in Table 3.

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                               Table 3
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               Human Development Index by Province
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                       2006-07     2018-19    Growth Rate (%)
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Punjab                  0.527       0.572                 0.7
Sindh                   0.529       0.574                 0.7
Khyber-Pakhtunkhwa      0.491       0.546                 0.9
Balochistan             0.470       0.473                 0.1
Pakistan                0.529       0.570                 0.6
=============================================================

Here too, there is evidence of Balochistan falling behind. One part of the HDI relates to education. According to the Pakistan Social and Living Standards Measurement Survey of the Pakistan Bureau of Statistics of 2020-21, the latest estimates of literacy rate at the provincial level are presented in Table 4.

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          Table 4
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Literacy Rate by Province
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                        %
Punjab                 64
Sindh                  57
Khyber-Pakhtunkhwa     57
Balochistan            40
=========================

Here too, the literacy gap of Balochistan is very large. It is one-thirds of the national average.

The bottom line is that in the presence of low and declining real per capita income in Balochistan, the incidence of poverty is likely to be much higher. According to the UNDP and the Oxford Poverty Institute, the share of population which was poor in 2014-15, according to the Multidimensional Poverty Index, in each province is given in Table 5.

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                  Table 5
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           Incidence of Poverty
=====================================
                      % of Population
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Punjab                           31.4
Sindh                            43.1
Khyber-Pakhtunkhwa               49.2
Balochistan                      71.2
=====================================

Therefore, as far back as 2014-15, over 71% of the population of Balochistan was poor, way above the level in other provinces. Also, the UNDP report also highlights the relatively high level of income inequality, poor economic state of the youth and greater gender inequality in the province.

There is need to understand the factors which have contributed to the relative under development of Balochistan. First, the province is characterized by severe shortage of water for agriculture. In fact, the underground water resources are being depleted.

Second, with the extremely low population density to the land area of one-sevenths of the national average, there is a widespread presence of very small settlements. The rate of urbanization according to the latest Population Census is 31%, as compared to 39% in the country as a whole. In the rural areas, 70% of the rural settlements are very small with population of less than 1000, as compared to 36% in the rest of the country. Consequently, the unit cost of provision of services like education, health, transport, and electricity is relatively much higher compared to the other provinces. Further, there are problems of inadequate governance capacity and accountability.

Third, the mineral resources of the province of Balochistan remain relatively under- exploited. The Sui gas deposits are getting depleted. Major flows of revenues to the Government of Balochistan from the Reko Dik deposits are yet to take place. There is a need for increasing the royalty and development surcharge on mineral exploitation in the province to the Provincial Government.

Fourth, the private sector is relatively underdeveloped in the province. A very worrying statistic is that the share of National Bank advances to the private sector and personal loans of Balochistan is extremely low at 0.11%. This is in comparison to the share in bank deposits of 1.87%. Clearly, not only is the demand for loans very low but also some of the bank deposits of Balochistan are being used for making loans in other provinces.

The fundamental question is what should be the development strategy for the province of Balochistan? The answer depends on the economic sectors in which the province has a comparative advantage. These are sectors in which the province’s share in the sectoral value-added is significantly higher than its overall share in the national GDP.

The sectoral shares which are relatively high of Balochistan are shown in Table 6.

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                       Table 6
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Sectors in which Balochistan has a Comparative Advantage
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                                 % Share of Balochistan 
                                 in National Value-Added
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Agriculture
Minor Crops                                         22.6
Fishing                                              7.3
Forestry                                            11.9
Industry
Mining and Quarrying                                21.0
Electricity and Gas                                  9.0
Overall Share of National GDP                        4.6
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Therefore, there are five sectors, namely, minor crops (fruits, vegetables, etc.), fishing, forestry, mining and quarrying, electricity generation and distribution and gas distribution where Balochistan has a comparative advantage. The development strategy for the province should focus on these sectors for higher public and private investment.

There is need also to identify the financial resources currently available with the government of Balochistan. This government has access to 8.7% of the total funds available with the four provincial governments combined as of 2021-22. The population share at 6.2% implies that the per capita availability of public funds is 31% above the national average. This difference is not large enough given the relatively high unit costs of provision in a province with an extremely low population density as highlighted above.

The time has come for a new NFC Award, which will assign greater weights in the horizontal sharing formula to the incidence of poverty and to the inverse of population density, thereby benefiting Balochistan. Also, special fiscal incentives need to be enhanced for private investment in the relatively backward areas of Pakistan.

There is a strong case for CPEC and the Special Investment Facilitation Council to focus especially on Balochistan given its mineral endowments and location with a large coastline, including Gwadar.

The honourable caretaker Prime Minister may wish to use this opportunity to assess the state of development activities in the province of Balochistan. Efforts ought to be made for preparation of an appropriate growth strategy so that the province can start the process of catching up with the rest of Pakistan.

Copyright Business Recorder, 2023