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Monday, March 31, 2008

Economic issues facing the new government in Pakistan

Poverty is the biggest and most intractable issue in Pakistan today. The problem can only be addressed by finding ways to reduce the population growth rate, increase agricultural output and boost exports of farm produce – thus raising income levels in the rural areas where the majority of the people live.


Years of low GDP growth, on the one hand, and high population growth on the other have combined to put Pakistan in a situation where the size of the economic pie has not been increasing fast enough to extricate the country from the poverty trap. To compound the problem, recent years have seen food prices and utility tariffs shooting up and up and up, making it increasingly difficult for people to make ends meet.

Industry, too, has been badly hit by the ever-rising cost of inputs, including electricity tariffs that are now the highest in the world. This has made our manufactured goods less competitive in export markets, leading to very slow growth in export earnings and a widening trade gap. Oil imports alone have cost us over $ 8 billion in the first six months of the current fiscal year. Driven by soaring international crude oil prices of over $ 100 a barrel, our trade gap is now running at about $ 1.7 billion a month, or about $ 20 billion a year.

We cannot sustain a trade gap of this magnitude indefinitely. The growing trade gap is putting increasing pressure on the country’s balance of payments and is reducing the fiscal space available to the government to finance development schemes. This, in turn, has forced the government to resort to increasing levels of foreign and domestic borrowing, with a corresponding rise in debt servicing costs.

The previous government repeatedly claimed to have “broken the begging bowl” and “reduced” its dependence on foreign borrowing. In fact, the total amount of foreign loans went up from $ 36 billion in 1999 to more than $42 billion in 2007. Total domestic borrowing, too, has risen sharply in recent years.

These multifarious problems cannot be tackled by economic measures alone. Economic measures must be accompanied by a policy aimed at reducing the population growth rate if Pakistan is to get out of the trap of demographic-induced poverty.

At the time of the first post-independence census in 1951, the area that now constitutes Pakistan (the former West Pakistan) had a population of 37 million. Today, it has a population of about 165 million, which is increasing by 2.1 per cent a year, according to government figures, though independent estimates put it closer to 2.5 per cent. Given this high rate of increase, Pakistan’s population is expected to double to 330 million in the next twenty years and double again to 660 million over the next two decades, making it the third most populous country in the world after China and India. With a population of that size, Pakistan’s economic future would be bleak indeed.

No government thus far has been able to put in place the population planning policies needed to reduce Pakistan’s population growth rate to a level that would allow the country to extricate itself from the demographic-cum-poverty trap. It is true that the population growth rate has fallen by about half-a-per cent from the three per cent level of 15 years ago, but this is not enough. It needs to be brought down further to around 1.5 per cent or less to give Pakistan the breathing space it needs to get out of the poverty trap.

At the present level of population growth, Pakistan would need a continuing GDP growth rate of well over seven per cent a year to make any kind of dent in the number of people living below the poverty line. That’s why this seven per cent-plus figure is now referred to by some analysts as the “poverty-busting” GDP growth rate. But achieving this seven per cent-plus rate of GDP growth on a continuing basis is going to be far from easy in today’s global economic environment of soaring oil prices and increasingly competitive export markets. This makes reducing the population growth rate all the more important.

Of all the forces that will change Pakistan and the rest of the world over the next generation, demography is probably the most important. The numbers of mouths to feed, the relative sizes of the population of the industrial world and the less developed countries, the age distribution of the west – all these forces will have a profound effect not just on the world economy, including the economies of developing countries like Pakistan, but on societies both rich and poor. The change will be gradual – the world population rose by some 110 million in 2000 to reach 6 billion, but in the west people barely noticed the fact that more than the population of Germany had been added to the human race that year.

Pakistan’s population is now growing by more than 3.46 million people a year, even going by the government figure of a 2.1 per cent population growth rate. That’s well over three million people that have to be fed, and clothed and housed every year. What is more, this 3.46 million is not a static number; it is increasing every year at a rate proportionate to rise in the total population of the country. Thus unchecked population growth and demography-induced poverty are our No. 1 problem, one that the new government needs to seriously address. And it must start addressing the problem not two years from now, or three years from now, or at some unspecified date in the future, but as soon as it has put its policy team together. In other words, reducing the population growth rate has to be the new government’s top long-term priority. Otherwise, Pakistan will remain forever mired in poverty, and the income gap between the haves and have-nots will go on increasing, along with all the attendant social, economic, political and law and order tensions that this gap creates.

Population shifts have an inexorable effect on the world’s living standards, its politics, its environment, and on how people behave towards each other in societies as diverse as Italy and China and Pakistan.

If, for most people, demography seems abstruse, there is at least no shortage of information to analyse. There is a wealth of data about population change – the birth rate, marriage age, number of children, and so on – which for some countries goes back several centuries. This data sets some curious puzzles: why, for example, given the fact that the Catholic faith frowns on artificial birth control methods, has the birth rate in Catholic Italy fallen to the lowest in western Europe, while that of Catholic Ireland has remained the highest. And it raises nightmarish questions: can the world feed the 8 billion people the United Nations estimates will be alive in 2020?

The problem is compounded by the fact that long-term population projections can be spectacularly wrong. We know pretty much how many people there will be in the world in 2010, and can make a decent shot at the number in 2020 or 2025. What is much more difficult is guessing where and when the world’s population growth will level off: the United Nations has estimates of a world population of between 7.5 billion and 14.2 billion for the year 2100, but it is perfectly possible that it could be outside even these extreme ranges.

Pakistani demographers and policy planners face the same problem in trying to figure out what Pakistan’s population will be in fifty or sixty years’ time. Who, in 1951, for example, when today’s Pakistan had a population of 37 million, could have predicted that the figure would soar to 165 million by the year 2007?

The world’s population more than doubled between 1950 and 2000, rising from 2.5 billion to 6 billion. In 1950 nearly a third of humankind lived in the industrial world; now it is below one-quarter. By 2020 it will be less than one-fifth.

Within the developing world, national populations are growing at very different rates. As countries grow richer, and infant mortality declines, so women have smaller families. In some developing countries – such as South Korea and Taiwan – women typically have families as small as those in industrial countries, two children or fewer. Contrast this with some African countries where women typically bear seven or eight children. The figure for Pakistan is five or six. This figure has fallen somewhat in recent years in the urban areas. In the rural areas, however, with their much higher levels of poverty and lack of education for women, the number of children that women typically bear has not gone down.

Education, of course, is the key to family planning and to a lowering of the population growth rate. Despite increased migration to the cities in the last twenty years, close to 70 per cent of Pakistan’s population still lives in the rural areas. Given this fact, the new government must make education in the rural areas an urgent priority. This will require investment in education on a massive scale, especially health education for women of child-bearing age. Tokenism will not do the job; what is needed is investment in education running into tens of billions of rupees a year.

Along with this, massive investment also needs to be made in development schemes in the rural areas, which include some of the most underdeveloped parts of the country. The future pattern of population growth and reduction in poverty will depend largely on how powerful a force the apparent link between development and fertility rate turns out to be.

By Kaleem Omar

Source: http://jang.com.pk/thenews/mar2008-weekly/busrev-31-03-2008/

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