Via Future Directions International, a detailed look at Pakistan’s economic and demographic situation:

Key Points

• Carved out of British colonial India, Pakistan was initially economically and socially successful.
• It subsequently became less so because of political decisions.
• The value to Pakistan of recent agricultural and economic agreements with Saudi Arabia and China is questionable.
• There is every possibility, though, that the Pakistani economy could rise again if there is the political will to take and implement strong decisions.

Summary

Unlike India, Pakistan’s economy, guided judiciously by the policies laid down by its founding father, Mohammed Ali Jinnah, proved to be an initial success. Around the 1960s, for instance, the country’s GDP growth rate stood at over six per cent. That figure would plummet in the wake of the loss of East Pakistan and, following other, ultimately disadvantageous, geo-political events, would not recover until very recently. Today, however, Pakistan has the opportunity to enhance its economy.

Analysis

The Pakistani Economy

The service sector accounts for close to 54 per cent of the Gross Domestic Product of Pakistan, or around $79 billion, the agricultural sector (twenty five per cent, equivalent to around $28 billion) and manufacturing (twenty one per cent, approximately $17.8 billion). It is estimated, however, that approximately half of the population is directly or indirectly dependent on agriculture for their livelihoods. This sector is the main source of foreign exchange earnings. The primary crops grown include wheat, cotton, rice, sugarcane and maize. In view of the increasing prices of other crops, such as pulses, onions, potatoes, chillies and tomatoes, these products are becoming increasingly prominent.

According to the Pakistan Bureau of Statistics, agricultural production of the main crops is as follows:

Going by this data, in 2011, the country’s available agricultural land for these crops stood at 13.2 million hectares and the total land available for agriculture 265,500 square kilometres. The latter figure equates to 1.66 km² of agricultural land per 1,000 people, which is superior to India’s 1.47 km² per 1,000 citizens but does not compare as favourably as that of the United States at 13.2 km² per 1,000 citizens. Using a different metric, only 27.7 per cent of Pakistan’s 79.61 million hectares is available for agricultural use, an altogether insufficient percentage given its salience to the economy.

This shortage is exacerbated by a threat of a different nature. As a previous FDI paper observed:

There is, however, another threat to Pakistani agriculture. In 2008, Prime Minister Yousuf Raza Gilani visited Saudi Arabia. To help repay Pakistan’s burgeoning external debt, he reportedly offered the Saudis hundreds of thousands of acres of agricultural land in exchange for US$6 billion in financial and oil aid. To make the proposition attractive, Gilani also offered the Saudis (and subsequently other countries in the Gulf region), 99-year leases on their land holdings, the complete repatriation of all produce and profits and, the icing on a very rich cake, a 100,000-strong security force to protect their investments. This offer extended ex-President Musharraf’s Corporate Farming Ordinance, which was passed in 2001. The Emirates Investment Group and Abraaj Capital of Dubai soon acquired 324,000 hectares of Pakistani farmland.

Much will need to be done if this vital pillar of the country’s economy is to be sustained in the first instance and then enhanced to cater to a growing population.

Pakistan’s manufactories are centred on the Karachi-Hyderabad region in the south and Lahore, in the Punjab. A chronic shortage of energy, however, has had a major detrimental effect on production, lowering GDP by an estimated two to three per cent in 2013. Due to this shortage, around 58 per cent of the population (an estimated 105 million people), used biomass domestically. Natural gas provided for around thirty per cent of the country’s energy consumption and petroleum and its by-products a further 26 per cent.

Pakistan is a net importer of crude oil and refined products. Imports of oil and related products grew by 12 per cent between 2014 and 2015, no doubt aided by falling international oil prices. In 2011, Pakistan produced just below seventy thousand barrels of oil a day; that figure increased to around ninety-five thousand in 2015 due to increased exploration and discoveries and the production of condensates. Domestic consumption, however, hovered around 431 thousand barrels a day in 2015, necessitating imports of oil and oil-based products. Here, too, lies another problem: Pakistan’s six oil refineries have a total crude oil distillation capacity of 390 thousand barrels a day, which has led the Pakistan State Oil Company to announce the construction of a seventh refinery that will process a further two-hundred thousand to 250 thousand barrels of crude oil a day. No time-frame was provided, however.

The offer to Pakistan by President Xi Jinping of Chinese investment in its economy, made during his visit to the country in 2015, was providential under these circumstances. As with Pakistan’s agricultural agreements with the Gulf States, however, this offer was also double-edged. During his visit, Xi signed several agreements, notably China’s investment in power generation plants and further investment in Pakistan’s road and port networks. It is estimated that a full 80 percent of the $46 billion promised – between $35 and $37 billion – will be used to address Pakistan’s desperate need for electricity. These projects will, apart from alleviating industry’s need for power, take some of the pressure off Prime Minister Nawaz Sharif, whose electoral promises included developing power projects to enable Pakistan’s industrial sector to work to its full potential.

While, on the face of it, the aid provided to build Pakistan’s energy infrastructure will be more than welcome in Islamabad, it does not look quite as appealing under closer examination. First, the aid provided will be used by Chinese construction firms – using Chinese labour for the most part – to construct the power plants for Chinese energy companies to own, operate and manage. The power generated will be sold to Pakistan. In essence, Beijing has perfected the diplomatic art of camouflaging the creation of business and employment opportunities for Chinese business organisations and Chinese citizens in the cloak of developmental aid. There is little doubt that some Pakistani labour will be used to construct the power plants but if China’s African model is a precedent, however, the employment opportunities available to Pakistanis will be of the menial kind. It is surprising that Islamabad did not recognise this to be a variation of the strategy that the United Arab Emirates and Saudi Arabia used to acquire Pakistani farmland in order to ensure their food security at Pakistan’s expense. It is also worth noting that the aid package does not deal entirely with the Pakistani economy or energy production but is also concerned with the purchase of Chinese-built submarines.

Pakistan’s economy has also been subjected to the vagaries of international events. While, for instance, the economy showed strong growth of around seven per cent between 2004 and 2005 and overall good growth between 2004 and 2009, the global financial crisis caused that growth phase to decline sharply, leading the Government of Pakistan to try to stabilise the economy. It persuaded the International Monetary Fund (IMF) to provide the country with a US$7.6 billion loan. The IMF raised the loan amount to US$11.3 billion and extended the term of the loan to twenty-five months from the original twenty-three in 2009. In 2013, the IMF extended another loan of US$6.6 billion to Pakistan. Projecting a sense of optimism in Pakistan’s economy, in 2015, the IMF said that ‘progress [had] been made in restoring economic stability, improving growth prospects, and reducing crisis risks.’ Echoing that optimism, the Asia Development Bank put Pakistan’s GDP growth at 4.7 per cent for the 2016 financial year, a slight increase over the projected 4.5 per cent. While this growth was due in some measure to unusually low oil prices, there is little doubt that reformed economic policies played their part. Due again to these policies, Pakistan’s economy is predicted to grow by 5.2 per cent in the 2017 financial year. The World Bank more or less reflects the slight optimism felt in regard to the Pakistani economy and echoes these figures with the caveat that more needs to be done to ensure that the current growth trend continues.

Pakistan’s dependence on oil imports constitutes a continuing drain on its foreign exchange resources and its exports fall short of being optimal. As the Department of Foreign Affairs and Trade reports:

Globally, Pakistan’s merchandise exports stood at US$25.2 billion and imports at US$41.4 billion in 2013, resulting in a trade deficit of roughly US$16 billion. Pakistan’s major exports in 2013 were cotton cloth (11.3 per cent of total); cotton yarn (9.0 per cent); knitwear (8.5 per cent); and rice (8.3 per cent). Pakistan’s major imports in 2013 were petroleum products (22.1 per cent of total); crude petroleum oils (13.6 per cent); and palm oil (4.6 per cent). Pakistan’s leading export markets in 2013 were the United States (13.7 per cent), China (11.6 per cent), the United Arab Emirates (9.7 per cent), and Afghanistan (8.5 per cent).

The World Bank, in its “Pakistan Development Update” report for 2016, echoes the danger posed by deficient exports to the overall economy, stating that:

Exports fell by 11.1 per cent in the first half of FY16 as a result of softer global demand and domestic bottlenecks. Port charges in Karachi, for example, are nine times higher than those in Dubai and Singapore. Shipping container dwelling times are three times longer than in East Asia. Exporters who want to participate in global supply chains are hamstrung by these constraints.

In overall terms, then, Pakistan’s economy shows some positive signs, although more progress is required if it is to grow in accord with its potential.

Demography of Pakistan

Pakistan is the sixth-most populous country in the world, with an estimated population of 202 million in July 2016. (Note that one source estimates the current population of Pakistan to be 195,015,582 as of 23 January 2017, based on the latest United Nations estimates. This is an increase of 2.1 per cent over the size of the population the previous year.) The former figure comprised the following sub-categories:

0-14 years: 31.99% (male 33,195,073/female 31,429,440)

15-24 years: 21.31% (male 22,194,064/female 20,845,816)

25-54 years: 36.87% (male 38,680,978/female 35,794,333)

55-64 years: 5.43% (male 5,498,126/female 5,463,453)

65 years and over: 4.4% (male 4,139,899/female 4,754,358) (2016 est.)

Of that number, the working population was estimated to be around 60 per cent of the total population, demonstrating that the country has an abundant economically-active human resource base. The growth rate of population in the 2012-13 period was two per cent but was estimated to have fallen to around 1.45 per cent by 2016. There were 22.3 births per one thousand population and 6.4 deaths per one thousand population in 2016 with a total fertility rate of 2.68 children per woman. At the present rate of growth, it is expected that Pakistan will become the fifth-most populous country by 2050, up one position from its current ranking.

The overall median age in Pakistan was estimated to be 23.4 years, with males at 23.3 years and females at 23.4 years in July 2016.

In keeping with the decline in global birth and death rates over the past several decades and the resultant improvement in life expectancy because of increased access to primary health care and disease eradication programmes, life expectancy in Pakistan has also increased from 65.8 years (female) and 63.9 years (male) in 2010-11 to 66.1 (female) and 64.3 (male) in 2011-12. It improved further in 2012-13, to reach 66.5 years for females and 64.6 for males. The 2016 life expectancy rates are 67.7 years overall, 65.8 years for men and 69.8 years for women.

It is to be borne in mind, however, that Pakistan, also in keeping with global trends, has witnessed a decline in its population growth rate, from 2.05 per cent in 2010-11 to 2.03 per cent in 2011-12 and further to 2.00 per cent in 2012-13. The country’s population density, i.e. the number of persons per square kilometre, which is usually obtained by dividing a country’s mid-year population by its geographic territory, was 231 in the 2012-13 period. This figure constitutes an average, however, and does not reflect the higher density of, say, Karachi, or the lower densities of less sparsely-populated Balochistan.

There are several ethnicities that make up Pakistan’s population. The major groups are Punjabis, who comprise 44.68 of the total population, Pashtun 15.42 per cent, Sindhi 14.1 per cent, Saraiki 8.38 per cent, Muhajirs 7.57 per cent and Balochi 3.57 per cent. Other groups accounted for 6.28 per cent of the population. Pakistan is overwhelmingly Muslim, with Islam being the official religion and comprising over 96 per cent of the population (Sunni 85-90%, Shia 10-15%) and others, who include Christians and Hindus, 3.6 per cent (2010 estimated). The main languages spoken are Punjabi, which is spoken by around 48 per cent of the population, Sindhi 12 per cent, Saraiki (a Punjabi variant) 10 per cent, Pashto (alternate name, Pashtu) eight per cent, Urdu (an official language of Pakistan) eight per cent, Balochi three per cent, Hindko two per cent, Brahui one per cent and English, which is an official language and the lingua franca of the Pakistani élite and most government organisations), Burushaski, and others, eight per cent. The Government of Pakistan earmarked 2.5 per cent of GDP for educational expenses and 2.6 per cent towards health care in 2014. There was, however, a drastic shortage of medical personnel in Pakistan, with 0.83 physicians available per one thousand head of population.

Any population, including a relatively younger one like that of Pakistan, can only be a true asset to national development if it is skilled and equipped to function to its full potential. Employment rates fell in Pakistan In the wake of the Global Financial Crisis but picked up marginally in 2013-14. Since then, however, employment rates are seen to have decreased once again. Pakistan, which has the ninth-largest work-force – estimated to be around 57 million-strong in 2011 – saw 3.4 million or roughly six per cent of those unemployed in 2011. This, however, was an improvement over the 7.7 per cent unemployment rate in the previous year.

Due to the shortage of opportunity, many Pakistanis seek employment outside of Pakistan. There were around 2.3 million Pakistanis working abroad between 2008 and 2012, including labourers, semi-skilled and skilled workers, technicians, accountants, bankers, doctors, engineers, teachers, telecom and Information Technology workers. Close to half of those (around 48 per cent), sought employment in the Middle East.

It would appear then, that Pakistan’s population, which is increasing overall, needs much work to be done and, equally, much support, if it is to reach anything approaching a standard of living that could be compared to developed countries. Much more needs to be done in terms of raising educational and health levels and at least just as much more to increase the overall standard of living of Pakistanis.

Pakistan has had its political and economic ups and downs since independence. While its economy and political landscape have ebbed in recent years, this was not always the case and, given Beijing’s renewed interest in Islamabad, it has the potential to rise again. The current government, headed by Nawaz Sharif, is plainly at pains to develop the economy but it will take a long time before the effects of decisions taken by previous administrations can be overcome. If those effects could be overcome, however, there is no conceivable reason why Pakistan’s economy could not grow once again.

Part two of this paper will explore Pakistan’s political environment and foreign policy approaches.