Decades of internal political disputes and low levels of foreign investment have led to slow growth and under-development in Pakistan. Agriculture accounts for more than one-fourth of output and two-fifths of employment. Textiles account for most of Pakistan's export earnings, and Pakistan's failure to diversify its exports has left the country vulnerable to shifts in world demand. Official unemployment was 6.9% in 2014, but this fails to capture the true picture, because much of the economy is informal and underemployment remains high. Pakistan's human development continues to lag behind most of the region. As a result of political and macroeconomic instability, the Pakistani rupee has depreciated more than 40% since 2007.
The government agreed to an International Monetary Fund Standby Arrangement in November 2008 to prevent a balance of payments crisis, but the IMF ended the Arrangement early because of Pakistan's failure to implement required reforms. The economy has stabilised, it continues to underperform and foreign investment has not returned to levels seen during the mid-2000's, due to investor concerns related to governance, electricity shortages and a slow-down in the global economy. Remittances from overseas workers, averaging more than $1 billion a month, remain a bright spot for Pakistan. After a small current account surplus in fiscal year 2011 (July 2010/June 2011), Pakistan's current account turned to a deficit where it remained through 2014, spurred by higher prices for imported oil and lower prices for exported cotton. In September 2013, after facing balance of payments concerns, Pakistan entered into a three-year, $6.7 billion IMF Extended Fund Facility. The Sharif government has since made modest progress implementing fiscal and energy reforms, and in December 2014 the IMF described Pakistan's progress as "broadly on track." Pakistan remains stuck in a low-income, low-growth trap, with growth averaging about 3.5% per year from 2008 to 2014. Policy maker of the country must address long standing issues related to government revenues and the electricity and natural gas sectors in order to spur the amount of economic growth that will be necessary to employ its growing and rapidly urbanising population, more than half of which is under 22. Other long term challenges include expanding investment in education and healthcare, adapting to the effects of climate change and natural disasters, and reducing dependence on foreign donors.
Since independence the pace of growth has averaged above 4.50 percent. But statistics suggest that Pakistan is only notch above poorest countries. It is because of high poverty rate, low literacy rate, poor infrastructure and outdated agriculture technology, lack of industrialisation, wide trade gap, poor healthcare system and low standard of living. If we take a closer look at the present economic indicators, Pakistan's economy is dangerously imbalanced. Anything below 6 percent GDP growth is too little to counter economic and financial odds.
Unfortunately, despite passing of 68 years, country's economic dependency is solely on old methods of relying on foreign inflows and low yielding agriculture sector growth that frequently demands government assistance for increase in food support price. It is regrettable for the economy that there is a minor reliance on our partially developed industrialised manufacturing sector that does not make serious contribution in this progressive era, which is now entering fourth industrial revolution.
Strong growth demands attention for firm planning and consistency in policy implementation that always remained low priority area for the decision makers for unknown reasons.
In the last 15 years, Pakistan's economy grew from USD 50 billion to USD 275 billion. During this period per capita income has surged from $490 to end up at $1370. This gain did not translate into well-being of the population causing very wide wealth gap between upper-income and middle-income to lower middle-income families. Income/asset inequality between the rich and the poor needs to be shifted from unproductive to productive areas and should be corrected through proper redistribution strategy.
Despite of the above, Pakistan has been a relatively fast growing economy in comparison to other developing countries but has lagged far behind the dynamic economies of East Asia and China. It was a leader of the pack in the South Asia until 1990 but India has overtaken us during the last 20 years. Political instability and frequent changes of governments, poor governance, law and order situation, economic sanctions and unfavourable external environment brought about a decline in Pakistan's growth rates in the decade of 1990s below the trend and also resulted in macroeconomic instability.
The speed at which Pakistan successfully integrates into the global goods, services, financial and labor markets will determine the extent of benefits to our external sector. In absence of both diversifications of exports in composition as well as markets the chances are that other countries will overtake us. The latest country that has surpassed us in the world exports is Bangladesh and Vietnam and other competing countries are poised to bite into our already meager market share. The mind-set, focus and efforts of the exporters in Pakistan have to undergo a radical change whereby attention to labor productivity, efficiency within the firm and plant, aggressive marketing and research and development should replace the traditional mode of looking to the Government for concessions and subsidies. In case we indulge in business as usual, the results would be highly detrimental to our economic prospects.
Supply of critical infrastructural facilities such as power, natural gas, pipelines and storages, roads and railways, urban mass transit, water supply and sewerage, ports and civil aviation have not kept pace with the growing demands of the industry, commerce and general public. Government, despite increased development expenditure outlays, would not be able to meet this demand in any meaningful way. Public-private partnerships in capital investment as well as operations and maintenance would have to be put in place.
Once the Gawadar Port is fully operational and linked with the transport network of Central Asia Republics and China will determine the accrual of additional economic gains to Pakistan in the coming decade. The sooner this network becomes effective and the Pak China Economic Corridor network, with Chinese investment of USD46 billion, is completed the economy should be able to extract benefits of at least another 2 percentage point of GDP. The on-going public and private investment projects such as construction of new dams and reservoirs, rehabilitation of canals, barrages and lining of water courses, new power generation plants, Iran - Pakistan gas pipeline, Liquefied Natural Gas, oil refinery at Khalifa point, extensive road network in Baluchistan, new science and engineering universities, up-gradation of the quality of technical and vocational education, mass transit systems in Karachi and Lahore, and other projects if completed on time would give a big boost to the economy overcoming some of the supply-demand gaps.