Pakistan’s economic paradox and potential By Dr Jamal Shah
PAKISTAN, a developing country, is burdened with a significant amount of internal and external debt; however, this is only one side of the coin. The other side reveals a nation rich in natural and human resources, bursting with potential to drive the country towards prosperity. Yet, despite these promising resources, Pakistan’s economic narrative is tarnished by mismanagement, personal interests, and a profound lack of commitment to the nation’s growth. This paradox leaves the country staggering on the edge of both promise and peril. To understand the depth of Pakistan’s economic challenges, one must first examine the fundamental pillars of its economy.
Historically, Pakistan has been an agrarian economy, with agriculture serving as the backbone of its GDP. However, the contribution of agriculture to GDP has sharply declined, from 42% in 1967 to just 22% in 2022. While such a shift might be seen as a natural progression towards industrialization, Pakistan’s industrial sector has failed to meet the expectations. The sector’s share of GDP has remained relatively stagnant, rising from 11.3% in 1960 to only 11.9% in 2022. This slow growth has not been sufficient to offset the decline in agriculture, leaving the economy unbalanced and overly dependent on the services sector, which now accounts for 52% of GDP.
Exports represent a crucial component of a robust economy. Unfortunately, Pakistan’s export performance is abysmal. In 1962, exports accounted for a mere 7.1% of the total GDP, a figure that rose to 9.0% in 2022. Although there were fluctuations during this period, the long-term trend has remained nearly constant. This stagnation, coupled with an increase in imports from 13% in 1962 to 18% in 2021, has left Pakistan grappling with a persistent current account deficit. A positive current account balance (CAB) is a hallmark of a healthy economy. However, since 1970, Pakistan’s CAB has been positive for only four years—specifically in 1983, 2001, 2002, and 2003, highlighting a chronic imbalance that threatens economic stability. The roots of Pakistan’s economic troubles run deep, extending into critical sectors like education and healthcare. Education, a cornerstone of human capital, is essential for enhancing worker productivity and fostering economic growth. However, Pakistan’s investment in education remains alarmingly inadequate, with just 2.4% of GDP allocated in 2020. This figure is significantly lower than that of neighbouring developing countries such as Bhutan, India, and China, which allocated 7.0%, 4.5%, and 3.6%, respectively. In addition, Malaysia, Kuwait, Bahrain, Qatar, Oman, Saudi Arabia, and the UAE allocated roughly 16%, 13%, 9%, 8.6%, 12.4%, 19%, and 12.6% of their respective GDPs to education. Similarly, in terms of healthcare expenditure, Pakistan lags behind its counterparts.
In 2020, Pakistan’s healthcare expenditure accounted for only 3.3% of GDP, which is relatively low compared to other emerging economies. Equally concerning is Pakistan’s underinvestment in research and development (R&D), a key driver of innovation and economic progress. In 2020, the country allocated just 0.20% of its GDP to R&D. In comparison, India’s expenditure on R&D amounted to 0.66%, China’s to 2.4%, Malaysia’s to 1.4%, Japan’s to 3.26%, and the UAE’s to 1.4%. Meanwhile, Israel and South Korea allocated 5.4% and 4.8% of their total GDP to R&D, respectively, placing them at the top of the list. Amid these challenges, Pakistan’s tourism industry holds significant potential to boost the country’s GDP.
The nation is home to a wealth of cultural, hist orical, and natural attractions, from the ancient ruins of Mohenjo-Daro to the breathtaking landscapes of the Northern Areas, which have been recognized by prominent travel guidebooks and magazines such as Lonely Planet, Condé Nast Traveller, and Forbes. In 2021, travel and tourism contributed USD 18 billion to the economy, yet this represented only 2.7% of GDP—far below its potential. In comparison, nations like Spain (15%), Malta (15%), Italy (9.1%), China (11%), India (6.1%), Thailand (8.5%), Malaysia (6.5%), Nepal (6.1%), and Bangladesh (4%) derive a much larger share of their GDP from tourism, underscoring the untapped potential that Pakistan could leverage with the right investments in infrastructure, marketing, and security. While sectors like tourism show promise, some others raise questions about national priorities. The path forward for Pakistan involves not only acknowledging the challenges but also harnessing its latent potential. The cotton industry, for instance, plays a critical role in the economy yet faces numerous hurdles, ranging from pest infestations to energy shortages. Addressing these issues through targeted investments in technology, infrastructure, and farmer incentives could significantly boost productivity and exports, potentially generating more than $10 billion annually. Similarly, the tourism sector offers a vast opportunity to diversify the economy and create jobs.
By investing in high-quality hotels, reliable transportation, and effective international marketing, Pakistan could transform its tourism industry into a major economic driver, capable of contributing between $15 billion and $20 billion annually. Pakistan’s economic narrative is one of contrasts—a nation rich in resources yet hampered by mismanagement, a country with immense potential yet weighed down by outdated priorities. To unlock its full potential, Pakistan must recalibrate its focus, investing in human capital, innovation, and industries that promise sustainable growth. Only then can the country move from the brink of economic peril to the threshold of prosperity.
—The writer is PhD Economics Studies, University of Dundee, UK Lecturer, Abdul Wali Khan University Mardan.
Pakistan’s economic paradox and potential By Dr Jamal Shah
Source: https://pakobserver.net/pakistans-economic-paradox-and-potential/