Caps pakistan economy may 6, 2014

THE GROWING SOCIO-
ECONOMIC CRISIS.
MOHAN GURUSWAMY
DISTINGUISHED FELLOW
OBSERVER RESEARCH FOUNDATION
Pakistan: On the Road to
Perdition.
September 6, 2012Mohan Guruswamy ORF
1

September 6, 2012Mohan Guruswamy ORF 2
Political/topographical map of Pakistan.

Quick comparison of India and neighbors.

Economic growth in South Asia (2001-11).
4

Snapshot of our old friend, the enemy.
5

6
Pakistan has been ranked among bottom 20 of the 144
economies around the world in The Global
Competitiveness Report 2012-2013, released
Wednesday by the World Economic Forum.
According to the Global Competitiveness Report (GCR)
2012-13, Pakistan lacks a long-term view of
competitiveness.
The level of corruption and poor governance are some
of the factors slowing down Pakistan’s economic
growth, therefore ranking Pakistan at 124 among 144
other countries on the index.

India/Pakistan GDP trends 1960-2008.
7

India/Pakistan growth rates 1960-2008
8

India, Pakistan GDP growth 2002-11.(%)
9

Pakistan’s GDP Growth Rate 2010-2013.
10

Pakistan’s GDP growth by sector.
11

India & Pakistan - Exports of goods and services (% of GDP)
12

Pakistan’s dwindling Tax/GDP Ratio.
13

Pakistan’s Federal Board of Revenue tax collection.
14

Untaxed “shadow” economy share in GDP. (%)
15

Tax/GDP ratios of Top 10 & Pakistan’s.
16
USA 28.2
China 17.0
Japan 27.4
India 17.7
Germany 40.6
UK 39.0
Russia 36.9
France 46.1
Brazil 36.8
Italy 42.6
Pakistan 10.6

“Much of Pakistan’s capital city looks like a rich Los Angeles suburb. Shiny
sport utility vehicles purr down gated driveways. Elegant multistory homes
are tended by servants. Laundry is never hung out to dry.
“Taxes are the Achilles’ heel of Pakistani politicians,” said Jahangir Tareen, a
businessman and member of Parliament who is trying to put taxes on the
public agenda. He paid $225,534 in income tax in 2009, a figure he made
public in Parliament last month. “If you don’t have income, fine, but then
don’t go and get into a Land Cruiser.”
Out of more than 170 million Pakistanis, fewer than 2 percent pay income
tax, making Pakistan’s revenue from taxes among the lowest in the world, a
notch below Sierra Leone’s as a ratio of tax to gross domestic product.”
From report by Sabrina Tavernise in The New York Times of July 16,2010
Tax-free prosperity!
17

“Yet Pakistan’s fiscal troubles are antediluvian. It is
one of the most lightly taxed countries in the world.
Fewer than a quarter of the country’s firms declare
any taxable revenues, and only 11 out of every 1,000
of its citizens pay tax on their incomes, according to
the World Bank. As a result, tax revenues amount to
a mere 10% of Pakistan’s GDP.”
The Economist, January 11, 2011.
http://www.economist.com/node/17913440
Free for all economy!
18

A survey, carried out by a reputed Lahore-based academic
institution a few years back, as a part of tax reformation drive,
concluded that mainly because of rampant corruption, in
combination with a host of other factors,
the country suffers a loss of
64 percent in income tax,
48 percent in customs, and
45 percent in sales tax .
Translated into hard cash, it means that for each hundred rupees
of genuine income tax payments of a typical Pakistani business,
the government collects only Rs 36.
The rest of the money is shared among the three parties -
assessors (taxmen), the assesses (taxpayers) and the middlemen
(tax practitioners).
Cost of walking out in the green channel.
19

Dr Aqdas Ali Kazmi* in his paper ‘Tax
Policy and Resource Mobilization in
Pakistan’ estimates
70 percent part of economy consists of
36 percent pure black economy,
18 percent exempted economy,
9 percent illegal economy,
4.5 percent unrecorded economy, and
2.5 percent informal or unreported
economy.
*Dr. Aqdas Ali Kazmi former Joint Chief Economist
(Macro), Planning & Development Division,
Government of Pakistan, Islamabad.
Black and bleak economy.
20

According to a US State Department report, released in 2006, the
Gini Coefficient for Pakistan is 68.0.
According to the same report, the 'Gini Index' for Japan is 14.9, for
Sweden is 21.0, for Switzerland is 21.1, for Germany is 22.3, for the
United Kingdom is 23.0, for Canada is 23.1, for France is 32.7, for
Iran is 41.0, for the United States is 46.6, for Argentina is 52.2, for
Mexico is 54.6, for South Africa is 57.8 and for Namibia is 70.7.
According to an United Nations report, from 1987 to 1999, the Gini
Coefficient for Pakistan was in the range of 0.33 to 0.43, but it
increased to 0.68 in 2006.
Comparative Income Inequality. Gini out of the bottle.
21

22
India & Pakistan Gross Savings /GDP. (%)

India & Pakistan Gross Capital Formation (GCF)/ GDP (%)
23

Net official development assistance
and official aid received (current US$)
24

Living on the dole.

India & Pakistan - Foreign Direct Investment ($).
26

Dwindling Investment/GDP Ratio.
27

Country Investment as %
GDP
China 42.60
India 33.70
South Korea 28.20
France 20.80
Japan 20.20
Russia 20.00
European Union 19.70
Italy 19.20
Germany 18.90
Pakistan 18.10
Brazil 17.00
United Kingdom 15.00
United States 12.50
Some Investment/GDP ratios.

IMF’s Pakistan GDP Projections (in US$ Billions)
GDP for Pakistan in year 2015
246.234
228.874
213.795
200.803
189.971
177.901
166.515

Drowned in gloom!
30

Take for example the high population growth of Pakistan. In contrast to
neighboring Iran and Bangladesh, Pakistan has been unable to get its total
fertility rate or TFR below 4.116.
Some Pakistanis may be rationalizing a failure at a critical aspect of
development (reducing the rate of population growth) into a positive
advantage (leaving Pakistan with a larger potential work force).
It is equally plausible that Pakistan’s current high TFR (and high population
growth rate of 2.7%) will perpetuate the youth bulge generation after
generation, overwhelming the state’s capacity to deliver education, health care
and jobs to an ever-expanding pool of young people.
How will Pakistan be able to supply the classrooms and qualified
teachers for this burgeoning generation, let alone future ones?
Demographic time bomb. Tick, tick, tick.
31

Troubles ahead with troubled youth.
32

India & Pakistan - Population ages 15-64 (% of total)
33

Demographic Highlights
Population Living in Urban Areas of 750,000+, 2005 (%) 18
Population Living in Urban Areas of 750,000+, 2005 31,795,000
Youth Ages 10-24, 2006 54,200,000
Youth Ages 10-24, 2025 64,800,000
Ever-Married Females Ages 15-19 (%) 21
Population Mid-2009 180,808,000
Birth Rate (annual number of births per 1,000 total population) 30
Death Rate (annual number of deaths per 1,000 total population) 7
Rate of Natural Incr. (birth rate minus death rate, expressed as a %) 2.3
Population Mid-2025 (projected) 246,286,000
Population Mid-2050 (projected) 335,195,000
Population Change 2009-2050 (projected %) 85
Only one thing is for sure - lots more Pakistanis to contend with.
34

Countries with the largest increases and decline of
populations in this century, millions.

The 20 largest countries in 2050, millions.

Current account (US$ m)
2005 2006 2007 2008 2009 2010
2011
Trade balance -6,340 -9,647 -10,587 -16,769 -10,372 -13,318
-14,149
Goods: exports fob 15,433 17,049 18,188 21.328 18,285 18,330
18,494
Goods: imports fob -21,773-26,696 -28,775 -38,097 28,657 -31,649
-32,643
Services balance -3,830 -4,912 -5,044 -5,363 -3,021 -3,199
-3,568
Income balance -2,514 -3,131 -3,740 -4,294 -1,681 -3,652
-3,702
Current transfers balance 9,079 10,941 11,085 11,024 12,668 14,664
15,273
Current-account balance -3,605 -6,750 -8,286 -15,402 -2,406 -5,505
-6,146
Getting deeper into debt.

Collateral Damage. Growing criminal economy.
According to an official of the UN Office on Drugs and
Crime ( UNODC), Afghanistan produces 355 metric tons
of heroin every year, about 90 percent of the whole
world's production. And 42 percent of the heroin
production of Afghanistan passes through different
routes from Pakistan.
Talking to Xinhua, National Research Development
Program Officer at the UNODC, Sher Ali Arbab, said that
150 metric tons of heroin come to Pakistan every year,
out of which 80 metric tons are consumed in Pakistan,
and 70 metric tons are smuggled outside. He said it is
impossible to seal the 2,500km-long porous border that
Pakistan shares with Afghanistan, to curb drug
trafficking and other smuggling.
38

India’s and Pakistan’s Military Expenditures.
39

Nuclear weapons neither ensure security, nor do
they consolidate political power; rather they are a
threat to both security and political power. The
events that took place in the 1990s showed that the
possession of such weapons could not even
safeguard a regime like the former Soviet Union.
And today we see certain countries, which are
exposed to waves of deadly insecurity despite
possessing atomic bombs. ... Ayatollah Khamenei.

Water scenario India.
43

Water scenario Pakistan.
44

Water
dependence
Indus River basin is the
main irrigation source.
106 MAF.
80% is utilized in
Punjab.
The big land holdings
are situated close to
canals and water
sources. The small
holdings are mostly fed
by the capillaries.
Blame it on India.
45

Who has got the water.
46

The basis of Pakistan’s inequality.
47

Ethnic divisions of Pakistan.

Zindagi Ek Sulagti Si Chita Hai Saahir !
Shola Banti Hai, Na,
Yeh Bujh Ke Dhuvaan Hoti Hai

THANK YOU!
Waqt ney kiya kya hasin sitam.
Tum na rahe tum aur hum na
rahe hum!
Mohan Guruswamy ORF September 6, 2012
50

India/Pakistan military expenditures as % of GDP 1988-2008.
51

India/Pakistan Military Expenditure % Budget.
52

2001 2002 2003 2004 2005 2006 2007 2008 2009
India 22.64 22.57 23.07 26.77 28.30 28.47 28.87 32.33 36.60
Pakistan 4.20 4.51 4.81 5.02 5.21 5.27 5.28 4.88 4.82
India/Pakistan Military expenditures this decade in $bn.
53

India & Pakistan Military Expenditure/ GDP (%).
54

What do ordinary Pakistanis think about their future?
55

Caps pakistan economy may 6, 2014

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