Pakistan: Recent Economic Developments and Future Prospects

Topics: Macroeconomics, Economics, Foreign exchange market Pages: 19 (6234 words) Published: March 10, 2013


Most of the news emanating about Pakistan in the Western media relate to terrorism, bomb blasts, Islamic fundamentalism, nuclear non proliferation, military rule etc. Seldom does one see a positive story appearing about Pakistan’s remarkable economic turnaround. But the fact of the matter is that despite such negative image Pakistan is one of the favored destinations for foreign direct investment. Foreign direct investment flows have surged by 95 percent during July – February 2007 and are expected to touch $ 5 billion or 3.5 percent of GDP – several times higher than FDI flows to our large neighbor in relative terms. Pakistan’s international bond issues and equity floatations through GDRs have been consistently oversubscribed and are priced at fine margins. Standard Chartered Bank has made acquisition of a domestic private bank for around half a billion dollars. China Mobile – the largest mobile company in terms of subscriber base – has bought out majority shareholding in one of the local cellular phone companies for over $ 400 millions. Philip and Morris has entered into an agreement to purchase 50.2 percent shares of the second largest Cigarettes Manufacturing Company of Pakistan for US 339 million. A number of other similar mergers and acquisitions are in the pipeline.

2.What is that inspite of such adverse publicity, perceived security risk and travel advisories the global investors, fund managers and international financial institutions from the United States, Europe, East Asia and Middle East all look upon Pakistan favorably and show such tremendous amount of confidence in the economy. Sophisticated investors from all over the world are willing to purchase billion of dollars of sovereign paper issued by Pakistan for 30 year duration. There must be something right the country ought to be doing which fails to reach the radar screen of the popular and highly influential western media.

3.As an international development economist I can venture a number of reasons for this apparently highly paradoxical situation. First of all, Pakistan is a country of 160 million people which is growing at an average growth rate of 6-7 percent for the last five years. Thirty million Pakistanis earning $ 10,000 - $ 15,000 (PPP terms) constitute a large and solid market for purchase of goods and services of all kinds. There are very few markets except China, India and Indonesia that are underpinned by the size and scale that the fast growing Pakistani middle class offers. Projections show that if the current growth A paper presented at the IPRI-RUSI Conference on “Pakistan: Strategic Challenges & Prospects” At Royal United Service Institute London on April, 17 2007

rates are attained for the next ten years, Pakistan’s per capita income will double in real terms by 2020. At that time the size of the middle class will rise to 50 million enjoying purchasing power incomes of average $ 30,000 - equivalent to those of some of the European countries today. Goldman Sachs has placed Pakistan in the next eleven category of largest economies among developing countries for its long term projection. The requirements of energy, infrastructure, goods and services of these 50 million will have to be met at world class standards. Multinational firms and holders of capital with excess liquidity, eyeing these prospects in emerging countries and feeling saturation in advanced economies, are rethinking their strategies and repositioning themselves. Pakistan along with other Asian countries is one of the beneficiaries of this strategy. The changing demographics of a youthful population and labor force in Pakistan staring against the stark reality of ageing population in Europe, Japan, and US and after a while China reinforce these promising prospects for the future. Of course, none of this will be either automatic or easy and good policies, good governance and good...
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