Development Economics Term Paper

DECLINE IN ECONOMIC GROWTH OF PAKISTAN
IN COMPARISON WITH ITS ASIAN RIVALS:

A COMPARATIVE STUDY OF PAKISTAN,
BANGLADESH, SRI LANKA AND INDIA
BY
SARAH ZUBAIR
BBA 5-G
REGISTRATION:
COURSE: (ECO-360) DEVELOPMENT ECONOMICS
END-OF-SEMESTER TERM PAPER SUBMITTED TO:
Sir Ehsaan Shaikh

Decline in Economic Growth of Pakistan in comparison with its Asian Rivals:
2013

BY SARAH ZUBAIR, BAHRIA UNIVERSITY KARACHI Page 2

ABSTRACT
The purpose of this study is to re-examine the decline in economic growth of Pakistan,
and its comparative study with its Asian rivals i.e. Pakistan, India, Bangladesh & Sri
Lanka. It is, further, to investigate all the factors contributing to the decline of Pakistans
GDP and to the GDP of all other three countries. Annual cross-sectional data for all
these four countries for the period 2005 to 2011 have been taken and analysis is made
by presenting the percentage change in Gross Domestic Product. A negative growth
has been find in the Pakistan economy. Some steps are being taken under New Growth
Strategy to enhance efficiency of Pakistan economy included in this report.

2013


INTRODUCTION:
In this analysis term paper, I have studied the declining trend of the economy of
Pakistan and compared it with BANGLADESH, SRI LANKA AND INDIA from the year
2005 to 2011. For studying these changes on the Economic growth, I have done this
analysis through GDP as a percentage change in the Gross Domestic Product (GDP). I
have also defined the causes of this decline in Pakistan, and compared it with its Asian
rivals. The gross domestic product (GDP) is one the primary indicators used to gauge
the health of a country's economy. It represents the total dollar value of all goods and
services produced over a specific time period - you can think of it as the size of the
economy. It represents the real economic growth rate builds onto the economic growth
rate by taking into account the effect that inflation has on the economy. GDP is the
market value of all the products and services that are produces by the people and
property of a given country, for the period of one year (Afzal, 2007).

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SIGNIFICANCE OF THE STUDY:
The objective of this study is to investigate declining trend of economic growth i.e. on
Gross Domestic Product in PAKISTAN compared with BANGLADESH, SRI LANKA
AND INDIA. Purpose is to conduct comparative study and analyze that which country is
in better position by comparing all countries findings.
LITERATURE REVIEW:
Pakistan will be left behind in South Asia in 25 years. In the five years between 2005
and 2011, Pakistans GDP per capita went from $2,150 to $2,420. Indias went from
$2,200 to $3,200 (Patel, 2012). Iqbal (2010) argued that FDI is generally considered as
a factor which enhances economic growth, as well as the solution to the economic
guproblems of developing countries. That deals with causality link between FDI, GDP,
Exports and Import; he founded bidirectional causality between FDI and GDP, FDI and
Export, GDP and Export, and Imports and Exports. Muhammad (2000) suggested that
for a true transformation of any economy, including Pakistan and Bangladesh, non-
economic problems are critical. Shamim and Mortaza (2005) investigated the
relationship between inflation and economic growth in the context of Bangladesh. The
empirical evidence demonstrates that there exists Aurangzeb (2006) investigated the
relationship between exports and economic growth in Pakistan by utilizing the analytical
framework.

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METHODOLOGY:
The methodology I used for studying the declining trend of economic growth in Pakistan
compared with BANGLADESH, SRILANKA AND INDIA is by the percentage change in
the Gross Domestic Product (GDP) from the year 2005 to year 2011. GDP is commonly
used as an indicator of the economic health of a country, as well as to gauge a country's
standard of living. This can give a very clear picture of the economic growth rate. The
results of GDP are presented in graphical form.

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FINDINGS AND ANALYSIS:
COUNTRY 2005 2006 2007 2008

2009

2010 2011
PAKISTAN
(GDP %)
7.67 6.18 5.68 1.6 3.6 3.55 2.96
BANGLADESH
(GDP %)
5.96 6.63 6.43 6.19 5.74 6.07 6.71
INDIA
(GDP %)
9.28 9.26 9.8 3.89 8.24 9.55 6.86
SRILANKA
(GDP %)
6.24 7.67 6.8 5.95 3.54 8.02 8.25

Source: World Bank
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ANALYSIS
PAKISTAN:
GDP Annual Growth Rate in Pakistan is reported by the Pakistan Bureau of Statistics.
Pakistan is one of the poorest and least developed countries in Asia. Pakistan has a
growing semi-industrialized economy that relies on manufacturing, agriculture and
remittances. Although since 2005 the GDP has been growing an average 5 percent a
year, it is not enough to keep up with fast population growth. To make things even
worst, political instability, widespread corruption and lack of law enforcement hamper
private investment and foreign aid.
CONDITION OF PAKISTAN: WHY DECLINE?
Decline in GDP growth can be attributed to energy shortfall, low productivity and
security concerns.

GDP growth rate during recent financial years remained at a low level on account of a
decline in capacity utilization and capital efficiency of the economy. The decline may be
attributed to energy shortfall, low productivity and security concerns.
The country has faced significant political, economic and constitutional challenges over
the past five years. These include continuing pressures of coalition politics, militancy
crises, sectarian tensions and consequent violence in many parts, recurring natural
disasters like the 2010 and 2011 floods, implementation challenges of devolution of
increasing responsibilities to the provinces, and a difficult economic situation.
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Also the cause of the problem is terrorism and extremism which we see at its extreme
here in Pakistan. This meant the death of foreign investment and a complete decline in
tourism sector of Pakistan .As foreign investors want political and economic stability
before they invest anywhere and the find none in our nation. Over year and years of
hardships and consistent economic decline we stood there with the bowls of beggary in
our hands at the doors of IMF and World Bank. Thus they came up with their
interference in the strategic and economic policies of the country and forcing it to cut
down government spending and take up strict austerity measures plus to increase the
rates of electricity and gas. All these added fuel to fire which agonized the economic
crisis further.

Recent wave of energy crisis which stuck Pakistan seemed to be the last blow to the
shaky nation. Millions of people lost their jobs and the textile sector was gone with the
wind. The sector which was major contributor to exports vanished. There emerged a
complete barren picture where all hopes died silently.
COMPARATIVE STUDY
Pakistans economy managed to grow by 2.96 percent in financial year 2010-11 despite
devastating floods in the early part of the fiscal year. One-fifth of the countrys
agricultural heartland was inundated, which interrupted production processes and
disrupted the subsequent supply of both labor and capital.
While the economies of India, Bangladesh and Sri Lanka are getting more inter-locked
with the rest of the world and with each other, Pakistans share of trade is falling.. In
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1990 Pakistans volume of trade was 39 percent of its gross domestic product against
Indias 15 percent and Bangladeshs 20 percent. But by 2010 the tables had turned.
Indias trade reached 50 percent of its GDP with the boom in services and its imports to
feed an economy on the move, while Bangladesh moved up to 43 percent. Pakistan by
contrast dropped to 32 percent as its exporters struggled to hold onto customers who
worried about the country on the frontlines of the war against Islamist militants, and as
the cost of business rose with 12-hour power cuts. Its reliance on textiles which
account for nearly half of its exports left it even more vulnerable to external shocks.
Sri Lanka had by far the highest per capita income in 2010 in South Asia ($2,375),
followed by India ($1,475), Pakistan ($1,000) and Bangladesh ($675). Except,
Bangladesh, all the other countries are considered middle-income ones. However,
Pakistan comes last in export performance in terms of its export-GDP ratio as well as
the technological content of its exports. In terms of external economic vulnerability, only
Bangladesh managed a positive current account balance (i.e., its trade and other
current incomes were greater than imports and other current payments) in 2010, though
Pakistan did have the consolation of having a smaller current deficit-GDP ratio than
India and Sri Lanka. In attracting foreign direct investment, Pakistan comes second,
behind India. Finally, on the overall economic competitiveness index, Pakistan is last
with Sri Lanka and India being the top two.
Historically, from 1994 until 2012, Bangladesh GDP Growth Rate averaged 5.58
Percent reaching an all time high of 6.70 Percent in June of 2011. Bangladesh is
considered as a developing economy. Yet, almost one-third of Bangladeshs 150m
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people live in extreme poverty. In the last decade, the country has recorded GDP
growth rates above 5 percent due to development of microcredit and garment industry.
Although three fifths of Bangladeshis are employed in the agriculture sector, three
quarters of exports revenues come from producing ready-made garments. The biggest
obstacles to sustainable development in Bangladesh are overpopulation, poor
infrastructure, corruption, political instability and a slow implementation of economic
reforms
India is the worlds tenth largest economy and the second most populous. India far
ahead in manufacturing and technology as compare to Pakistan meant their products
were cheaper and of high quality. The most important and the fastest growing sector of
Indian economy are services. Trade, hotels, transport and communication; financing,
insurance, real estate and business services and community, social and personal
services account for more than 60 percent of GDP. Agriculture, forestry and fishing
constitute around 12 percent of the output, but employs more than 50 percent of the
labor force. Manufacturing accounts for 15 percent of GDP, construction for another 8
percent and mining, quarrying, electricity, gas and water supply for the remaining 5
percent.
Sri Lankas economic growth accelerated in the second quarter on higher investment
and as the central bank avoided the interest-rate increases that have contributed to a
slowdown elsewhere in Asia. Sri Lankas central bank has kept rates unchanged since
the start of February to support expansion and take advantage of stability after the end
of a 26-year civil war. Sri Lankas agriculture expanded 1.9 percent in the three months
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through June after shrinking 5.1 percent in the previous quarter, according to the
statistics office. Services increased 8.8 percent and industry grew 9.4 percent last
quarter.
Sri Lankas macroeconomic conditions are quite strong and the nations monetary
policy stance is appropriate to support growth
Sri Lanka is a developing economy off the southern coast of India. In spite of years of
civil war, the country has recorded strong growth rates in recent years. The main
sectors of the Sri Lanka's economy are tourism, tea export, apparel, textile and rice
production. Remittances also constitute an important part of country's revenue.
MEASURES TAKEN IN PAKISTAN TO IMPROVE GDP:
Following steps are being taken under New Growth Strategy to enhance efficiency of
Pakistan economy:
Heavy investment to enhance generating capacity of electricity and improve
operational efficiency of electricity generating plants and electricity distribution
system.
Investment in software, connectivity and youth to enhance productivity, develop
entrepreneurship and innovation to spur growth.
Better manage cities to enhance productive capacity and trade.
Improving legal and regulatory framework and market & governance reforms to
enhance competition.
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CONCLUSION:
Pakistans GDP lay far below in comparison with its Asian Rivals like China,
Bangladesh, Srilanka and India. Pakistans economy continued to underperform when
compared with other economies in the region. There was no improvement in the
security situation; political tensions have grown; the southern provinces were yet again
battered by severe floods which impacted agricultural growth and public expenditure.
Pakistan real GDP growth remained the lowest at 2.96% percent among the regional
countries on the weak external factors, bad governance and poor performance of its
industrial sectors.
On the contrary, India, Sri Lanka, and Bangladesh posted growth of 6.86 percent, 8.25
percent and 6.71 percent respectively. In this scenario, Pakistan will be surviving to
maintain its strong economic position in the region until the political and financial
stability bring in the economy for long-run.
Measures taken by Pakistan economy to enhance efficiency include heavy investment
in plants, software and technology to come up with new innovation. We can only hope
the betterment in Pakistans GDP in the upcoming years.

2013


REFERENCES:
GDP Growth rate DATA FROM WORLD BANK, Retrieved from: http://www.worldbank.org/
DR. MURTAZA NIAZ, 2011 Comparing Pakistan Regionally, The Express Tribune, Retrieved from:
http://tribune.com.pk/story/283371/comparing-pakistan-regionally/ [10 May 2013]
SRILANKA GDP GROWTH RATE, trading economics, n.d, accessed 10 May 2013, Retrieved from:
http://www.tradingeconomics.com/sri-lanka/gdp-growth
Pakistan GDP GROWTH RATE, trading economics, n.d, accessed 10 May 2013, Retrieved from:
http://www.tradingeconomics.com/pakistan/gdp-growth [10 May 2013]
INDIA GDP GROWTH RATE, trading economics, n.d, accessed 10 May 2013, Retrieved from:
http://www.tradingeconomics.com/india/gdp-growth [10 May 2013]
BANGLADESH GDP GROWTH RATE, trading economics, n.d, accessed 10 May 2013, Retrieved from:
http://www.tradingeconomics.com/bangladesh/gdp-growth [10 May 2013]
GDP declines due to energy shortfall, low productivity, Daily Times, August 4, 2011, Retrieved from:
http://www.dailytimes.com.pk/default.asp?page=2011%5C08%5C04%5Cstory_4-8-2011_pg5_1 [10 May
2013]
Anusha Ondaatjie, 2011, Sri Lankas GDP Growth Accelerates to 8.2% on Higher Investment,
Bloomberg News, Retrived from: http://www.bloomberg.com/news/2011-09-15/sri-lanka-s-gdp-growth-
accelerates-to-8-2-on-higher-investment.html [10 May 2013]

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DECLINE IN ECONOMIC GROWTH OF PAKISTAN

IN COMPARISON WITH ITS ASIAN RIVALS:

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