Pakistan has faced political and environmental setbacks recently that
have significantly affected the state and health of its economy. This
paper reviews the state of Pakistan’s economy and the performance
of its social sectors over the period Financial Year (FY) 2008–FY
2015. The paper also examines the policy measures taken to accelerate
economic growth and the implications of the current state of Pakistan’s
macro-economy for India. The first section examines the key macroeconomic
trends in Pakistan, including the state of external balances.
The second section reviews developments in the social sectors, and
compares expenditures on defence with those on education and
health, to highlight Pakistan’s rather lop-sided development priorities.
The penultimate section outlines the foreign investment regulatory
framework. The final section highlights the challenges faced by
Pakistan and suggests measures to address them.
Pakistan is the second largest economy in South Asia1
after India. The
rate of growth of its Gross Domestic Product (GDP) was 4.2 per cent in
2014-152
, which is projected to increase to 4.5 per cent in 2015-16.3
The
growth momentum in Pakistan is stimulated by the government’s steady
reform efforts and favourable external market conditions such as low oil
prices, growth in remittances, rising Foreign Direct Investment (FDI)
and privatisation proceeds that have helped maintain the fiscal balance. More recently, the government has pushed
forward a reform agenda to overcome
the economic setback caused by political
instability and the devastating floods in 2014.
These reforms are focussed on encouraging
foreign investments from the United States
(US), China, Saudi Arabia and Singapore.4
Expectedly, there has been no policy
initiative to improve bilateral economic
ties with India despite the well-established
finding that Pakistan and India both could make significant welfare gains
for their people by enhancing bilateral economic cooperation.5
Against this
background, this paper reviews the developments in the macro-economic
and social sectors in Pakistan, and draws the implications for India.