Pakistan is faced with a myriad of challenges on both the economic and social front but through the right policies and commitment, transformation can take place. An integrated approach prioritising development challenges is required to develop solutions. National development priorities require balancing of economic, social and environmental aspects to produce sustainable results.
One of the main reasons for Pakistan's slow and frequent cycles of low growth is high current account deficit that the economy is often unable to sustain. Once again, the country is facing the same crisis with an urgent need to address the deficit through the right set of fiscal and monetary policies. In the last fiscal year, current account deficit was recorded at 5.8 percent of gross domestic product (GDP).
Pakistan's high and unsustainable current account deficit is a structural issue that arises after every five years or so. In the ongoing crisis, foreign exchange reserves have depleted to almost USD 7.5 billion and the growth in exports has also been falling over the last few years.
Pakistan's current account deficit is not exorbitantly high compared to regional countries. It has remained on an average of -2.5 percent of GDP between 2008 to 2017, which despite being higher than the regional average, is still lower than that of, Egypt (-3.7 percent), Morocco (-5.4 percent), Sri Lanka (-3.9 percent) and Turkey (-4.8 percent).
Pakistan has consistently held lower foreign exchange reserves than its peers. On average, the reserves have been at 5.4 percent of GDP, which are lower than all countries included in the analysis, apart from Egypt. While the regional average is 19 percent, some countries like Malaysia have foreign exchange reserves amounting to even 34 percent of GDP. Low reserves make Pakistan's economy vulnerable to fluctuations in current account.
Within the current account, larger contribution in the overall deficit is from the trade of goods than services. Pakistan's average goods' deficit (7 percent of GDP), though higher than the regional average, is still lower than most countries such as India, Morocco, Sri Lanka and Tunisia. However, what particularly stands out in all these countries is that they make up for the deficit from trade of goods through surplus in the services sector. The neighbouring country, India, accounts for its goods deficit of 7.8 percent of GDP through a surplus of 3.4 percent in the trade of services. Pakistan on the other hand, only adds to the deficit by a further negative 1.4 percent of trade in services.
On the economic front, indicators such as income per capita demonstrate that Pakistan's economy has grown over the years but at a slow and inconsistent pace. While income per capita has increased from USD 724 in 2004 to USD 1,640 in 2017, it has not been synonymous with a consistent GDP growth rate. The GDP growth had reached the lowest level of 0.36 percent in FY 2009 and thereafter it remained volatile with an average of 2.82 percent between FY 2008 and FY 2013. It picked up pace again to reach 5.8 percent in 2017.
Pakistan's inconsistent growth rate has led to several regional countries surpassing it in economic development. While Pakistan's gross national income (GNI) per capita is still comparable to some of the regional countries, the rapid economic development experienced by other countries has pushed back Pakistan in competitiveness and overall maturity and growth of economy.
In terms of GNI per capita, Pakistan was ahead of India, Nepal and Bangladesh in 1990s. However, India, for instance, through its progressive economic policies and reforms, was able to surpass Pakistan, with the gap between the two countries increasing as Pakistan's economy faltered.
Despite high potential, the number of foreign tourists coming to Pakistan is still very low. An encouraging trend has been noted in recent years owing to improvement in law and order, but it can be further increased through policies that promote Pakistan's tourism industry, its destinations, history and culture, and allow for expansion in businesses associated with the tourism industry. Investment in more tourist attractions is also required to attract tourists through the right marketing policies. The World Travel and Tourism Council has estimated that Pakistan's total contribution from tourism to GDP was USD 8.8 billion, while India's was USD 91.3 billion. Pakistan has significant potential to further increase revenue from tourism, generate employment opportunities and plug its current account deficit.
On the most recent global ranking of 190 economies, Pakistan lands on the 136th spot - lower than all regional countries apart from Bangladesh. Pakistan loses upon its potential to increase trade and investment through a plethora of regulatory bottlenecks that raise the overall cost of doing business for private investors. Pakistan's regulatory environment creates bottlenecks in vital areas associated with setting up and managing the day to day operations of a business entity, such as obtaining construction permits, getting electricity, obtaining credit, registering property, trading across borders and even paying taxes.
Pakistan is prone to the boom and bust cycles of economic growth. After every 4-5 years, the country finds itself tapped into the issue of balance of payments. The country's exports have largely remained stagnant over the years, which is considered to be the main reason for its low foreign exchange earnings.
There is a need to diversify the export base and export markets. Besides exports and remittances, experience of other countries suggests that international tourism plays a critical role in building up foreign exchange reserves. The current contribution of tourism to Pakistan's economy is estimated at 6.9 percent of GDP which is expected to double in a decade; however, the bulk of it is domestic tourism. International tourism is largely unexploited. This is an area where Pakistan could generate additional foreign exchange earnings. This would certainly require further improvement in the security situation and tourism infrastructure in the country.
Pakistan has the highest population growth rate in South Asia. It will find it difficult to provide the required public services to its citizens at the current population growth rate which is as high as 2.4 percent.
Pakistan is the fastest urbanising country in South Asia. At the current 3 percent annual growth rate, nearly half of the population will live in cities by 2025. Urbanisation offers huge opportunities for economic growth. However, to benefit from this trend, the government should also pay attention to the growth of second tier cities along mega cities.
Pakistan is the eighth most vulnerable country to the effects of climate change. The mean annual temperature in the country has already increased in the last 50 years.
And finally, the challenges related to governance bottlenecks need to be confronted head-on. The e-governance, though not a panacea, provides useful tools to improve efficiency in the provision of public services and improving public sector accountability and transparency.