Demographics and Politics as Much as Floods and Security Undermine  Pakistan's Economy
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Demographics and Politics as Much as Floods and Security Undermine Pakistan's Economy

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Pakistan has been declared a key strategic partner of the US and has received extensive economic aid. However, the payoff to this aid is undermined by serious demographic and political weaknesses.

Pakistan has been declared a key strategic partner of the US and has received extensive economic aid. However, the payoff to this aid is undermined by serious demographic and political weaknesses.

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Demographics and Politics as Much as Floods and Security Undermine Pakistan's Economy Presentation Transcript

  • 1. More Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Demographics and Politics as Much as Floods and Security Undermine Pakistan’s Economy Posted January 26 , 2011 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.
  • 2. A Special Relationship Clouded by Economic Weakness
    • At a White House meeting on January 14, 2011, US President Obama underscored the importance of the US-Pakistan relationship
    • Unfortunately, the relationship is clouded by the weakness of Pakistan’s economy
    • Much publicized floods and security issues are part of the problem, but underlying demographic and political troubles make matters worse
    Posted Jan. 26, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com U.S. President Barack Obama and Pakistani President Asif Ali Zadari Official White House Photo By Pete Souza
  • 3. GDP Growth in Pakistan and its Neighbors
    • A few years ago, Pakistan was doing well, with growth approaching that of its neighbors China and India
    • At that time the World Bank gave Pakistan high marks for economic reforms
    • Since then, things have fallen apart. Pakistan was hard hit by the global recession, and unlike other emerging markets, has yet to recover
    Posted Jan. 26, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 4. Demographic Weaknesses
    • Pakistan’s population is growing at 2.13 percent per year compared with 1.27 percent for India and .61 percent for China
    • A result of higher population growth is a higher dependency ratio—more children and elderly per 100 people of working age
    Posted Jan. 26, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 5. Use of Human Resource Potential
    • In addition to having a high dependency ratio, Pakistan fails to use its available labor force fully
    • Pakistan is in the lowest 10% among countries of the world in terms of labor force participation by women
    • Educational attainment is also very low, and only half as many women as men have a secondary-school education
    Posted Jan. 26, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 6. Inflation and Budget Problems
    • Pakistan has experienced high inflation in recent years
    • A large budget deficit, over 5 percent of GDP, makes it harder to control inflation
    Posted Jan. 26, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 7. Taxes and Subsidies
    • Energy subsidies are a major source of Pakistan’s budget deficit. Much of the subsidy goes to large companies, while brownouts and power shortages for the population give rise to street demonstrations
    • An inefficient tax system adds to the budget shortfall
    Posted Jan. 26, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com “ Energy subsidies consume a large part of [Pakistan’s] budget. They’re inefficient and untargeted so that the bulk of the energy—of the benefit from the energy subsidy goes to higher-income individuals and large companies.” Caroline Atkinson, IMF January 2011 http://www.imf.org/external/np/tr/2011/tr010611.htm
  • 8. Political Troubles Thwart Reform
    • At the beginning of 2011, the government had prepared a reform package that would have cut energy subsidies and restructured the tax system
    • Just at that time, the governing coalition collapsed
    • In order to reassemble a working majority in parliament, the government abandoned the reform package
    Posted Jan. 26, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com “ Time and again, the documents cite the same problems, the donors recommend the same solutions, the government of Pakistan promises to implement the same reform, the government breaks (and donors lament) the same promises.  And the cycle repeats.” Molly Kinder Center for Global Development http://blogs.cgdev.org/mca-monitor/2010/06/pakistan%E2%80%99s-energy-sector-groundhog-day-for-usa.php Pakistan’s Parliament Building http://commons.wikimedia.org/wiki/File:Pakistani_parliament_house.jpg
  • 9. A Tangle of Problems
    • A tangle of problems thwart Pakistan’s development
    • Floods, earthquakes, and security issues are real; there is no intention here to belittle them
    • However, even without those problems, demographic and political difficulties stand in the way of prosperity
    • For the time being, billions of dollars in assistance from the United States, the IMF, and other sources shows little promise of payoff either to the people of Pakistan itself or to those countries that count it as a strategic partner
    Posted Jan. 26, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com