The economy179 Context
When the PPP-led Government took office in 2008, it was confronted by major economic challenges, many of them deep-seated and long-standing. It is questionable whether its efforts to address these have been successful.
Pakistan inherited little industrial infrastructure on independence and the contribution of the industrial sector to its economy in 1948 was half that of India’s. Since then, economic development has been spasmodic and uneven, concentrated in urban parts of Punjab and Sindh, with severe disparity between these and more rural areas, particularly in Balochistan and Khyber-Pakhtunkhwa.
Over the past sixty years, Pakistan has been heavily reliant on financial inflows from abroad to finance its persistent trade and fiscal deficits. Aid flows have been turned on and off in response to political developments, with each suspension highlighting the country’s vulnerability and need for fiscal and structural reform, with each resumption obviating to some extent the need for the Government to make such changes. Inflows of private capital, including foreign investment, have been similarly susceptible to changing investor sentiment.
Remittances from Pakistan’s diaspora, by contrast, have proved a more stable source of foreign capital, as well as an important source of economic security for many households. Total remittances are projected to reach $14bn in 2012, up from $4bn a decade earlier.
Limited tax-raising capacity, combined with commitments to military spending and debt interest, has left little money for government expenditure in areas such as health and education. The conflict with India over Kashmir has been particularly burdensome in this respect, contributing to the tensions that have fuelled costly nuclear and military proliferation. Meanwhile, natural disasters and military offensives in the FATA and Swat Valley have displaced millions and generated substantial reconstruction costs.
Transparency: Transparency International Corruption Perceptions Index 2011; Doing business: World Bank Doing Business 2012; Human development: UN Human Development Index 2012 ranking; GDP per capita: ranking based on dollar at purchasing-power-parity
As a result, Pakistan’s levels of development lag behind the rest of South Asia, with the exception of Afghanistan (see section 2.7).
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