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Reasons behind Pakistan’s lower GDP

Published on 1st Sep, Edition 35, 2014


For the fiscal year 2014, the United Nations Economic and Social Commission for Asia and the Pacific have projected the country’s GDP to pick up to 4.1 percent. A report launched by UNESCAP stated that in the recent months, positive changes had been experienced in the economy of the country which included an improvement in the growth of large scale manufacturing industries; appreciation of the local currency; increase in the foreign exchange reserves along with an increase in the private sector credit.
Pakistan’s economic growth had come down to 3.7 percent in 2013 which had been a decline from 3.8% of the previous year. Due to poor weather conditions in 2013, the output growth of agriculture had fallen down while on the other hand production in the industrial sector had increased. Investments were made in alternative energy and enhancements had been made on the capacity of the industry along with focus being placed on large scale operations in the sector.

While overall investment had remained slow, the report also stated that it was through public and private consumption that there was a movement towards growth. “The investment-to-GDP ratio fell slightly to 14.2 percent of GDP in 2013 which is lower than most other economies in South and South West Asia.”

The recently concluded fiscal year of the government was finally accepted as being one in which the economic growth was the worst in recent years at 3.3 percent. Thus the proclamation by the PML-N of economic revival was not met. The acceptance by the government of the GDP to be 3.3 percent was made in front of the International Monetary Fund. While publicly the government maintained that the growth in the country stood at 4.1 percent, the actual growth rate is yet to be shared by the government with the public and the Parliament.

Furthermore in order to accommodate fresh graduates and youth who happen to be entering the market looking for jobs, the country requires a growth rate of 7 percent. However, due to not being able to achieve this target, these individual remain unemployed due to a lack of opportunities as was stated by the Planning Commission of the country as well.

The Asian Development Bank has also forecasted the nation to have a moderate economic growth at a rate of 3.4 percent during the year 2014 while government reforms and efforts to stabilize the country continue to be put into effect. A report released by them stated that it was due to such efforts being made to re-stabilize the nation that slow signs of progress and recovery were being witnessed in the country in terms of economic growth. While this may be a sign of positivity, other issues continue to be a problem for the nation, which consists of security issues along with macroeconomic challenges which need to be addressed if the present momentum of progress were to be continued.


The report by the Asian Development Bank also revealed that while growth in South Asia on the whole was gradually rising, the region still continued to remain at the slowest growing sub-region. Having a GDP of 4.8 percent in 2013 in comparison to Central Asia having a GDP of 6.5 percent in the same period suggested the slow progress of the region.

Reasons due to which Pakistan has recently experienced such difficulty in terms of its GDP growth was mentioned to be due to factors such as high expenses and costs for the purpose of providing for national security; constant energy subsidies and the increasing losses which were being incurred by enterprises owned by the state. For the country to have a better fiscal stability and sustainability, the report suggested that Pakistan can broaden its revenue base by the better administration of taxes along with eliminating any kind of exemptions which may be taking place. It should be taken into consideration that more than 90 percent of the provincial revenues were transfers of federal shared taxes.

Furthermore, resources should be allocated appropriately in order for them to promote investments and economic growth in the country.

The large scale manufacturing sector seems to be slightly promising as it showed growth at a rate of 6.7 percent during the initial 6 months of the 2014 fiscal year. With exports of the country slightly doing better than before are also expected to do better and to grow further in the remaining time of the fiscal year. Along with that, with increasing working remittances and reserves held by the State Bank of Pakistan reflect foreign inflows suggesting sign of a positive yet slow economic recovery.

Considering the rate of inflation in the country, while it remains to be in single digits, it must be brought down further for the sake of the people and to provide them with the welfare they deserve. Asian Development Bank’s Country Director for Pakistan, Werner E. Liepach was of the opinion that similar to countries in the region, Pakistan too must take appropriate measures to protect the poor from the adverse effects of inflation, fiscal adjustments and other such negative shocks. He said, “Direct cash transfer to poor families through social protection programs provides vital help in shielding the vulnerable groups.”

The Asian Development Bank is also doing its part in helping the nation. Inflows were expected to come into Pakistan worth US$ 500-600 million by the end of the fiscal year for various projects aimed towards the development of the social sector. This loan which has been approved is to be paid to Pakistan within the upcoming 25 years.

In conclusion, in order for Pakistan to grow in the future, there not only needs to be an increased investment in the different industries but many jobs need to be created so as to cater to the fresh graduates who are ready to start working and make the country proud. The inflation rate needs to be curbed and reduced so that the country can achieve the level of growth required to compete with other economies and states in the region.

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