Pakistan's economy can thrive even in lean times but it needs political will and marketing efforts
PAKISTAN has a geostrategic importance largely because one of the world's most important trade routes in the fast-growing intra-regional trading segment of the global economy passes through it. With strategic intent and sound policies, it can become the world's 16th largest economy by 2050 based on GDP at purchasing power parity. Projections depict this may mean that Pakistan will overtake economies such as Italy and Canada, which are at present ranked at 12th and 17th, respectively.
According to research reports, on the basis of purchasing power parity, Pakistan can climb from its current 24th place (with GDP at purchasing power parity amounting to US$988 billion) to 20th place (US$1.87 trillion) by 2030, and to 16th place (US$4.2 trillion) by 2050. In terms of GDP at real market exchange rate, Pakistan's economy is projected to rise from its current 28th place (US$284 billion) to 27th (US$776 billion) by 2030, and to 19th (US$2.8 trillion) by 2050.
However, realising this growth potential also calls for the implementation of structural reforms to improve macroeconomic stability, diversify the economy away from undue reliance on natural resources, and develop effective political and legal institutions.
Pakistan's progress matters because it is the sixth most populous country in the world having a population of 200 million, half of whom are under 25 years of age.
There are definitely policy signs that indicate a more friendly business regime in Pakistan for foreign investments. Some of these initiatives would enhance the confidence of the international business community to consider Pakistan a long-term investment destination. Notable measures include:
While the overall economic situation in Pakistan is not very buoyant, equities as an asset class seem to be on an upswing, with the currency devaluation in recent times. Also, going by past records and as noted in a recent research report by a brokerage house, the Pakistani equity market has usually rallied by between 12 and 22 per cent in the three to six months preceding the general elections. And with elections expected this year, the timing seems to be closing in.
In light of these factors, it is critical that the political leadership realise that increased inflows of foreign capital will enhance the allocative efficiency of the capital, and will give an upward thrust to domestic stock market prices. The Foreign Portfolio Investment (FPI) has an impact on the price-earnings ratios of the firms; a higher P/E ratio leads to a lower cost of finance, and stock purchases on the secondary market can result in a higher amount of investment. The first impact is to increase the price of the shares rather than the flow of funds to the companies that wish to raise investment. Increased wealth of local investors will eventually enhance consumption. This way, some amount of capital inflows can be directed towards consumption.
Pakistan's economy presents prospects and challenges which call for an all-out strategy to attract foreign inflows - be it in the form of an amnesty scheme or FPI - through a sustained and aggressive marketing of Pakistan across the Middle East, Europe and North America.
