Economic growth - lessons for Pakistan.

KARACHI -- Economic growth is the primary goal of economic managers. All other economic objectives, ie, inflation control, unemployment reduction and balance of payments management are just consequences of achieving or not achieving the economic growth.

Since economic growth is the primary determinant of standards of living of the population, it has a direct impact on the lives of people.

Pakistan as a nation has been facing the economic growth question since decades and sadly it is yet to find a sustainable solution. We have followed the quick fix of consumerism-led growth at least twice in the last 25 years but its results were not sustainable. Consumerism in Pakistan was not only superficial, ie, cars and personal loans-driven, it was also almost completely fueled by imports. The primary problem with this model is that whenever the real gross domestic product (GDP) growth goes north of 4%, the balance of payments crisis erupts, which leads to a quagmire of issues.

Imports shoot through the roof to fuel this growth and this leads to unsustainable levels of current account deficit (CAD). Due to this, the country experiences a steep decline in foreign exchange reserves.

Following the rapid fall in reserves, we rush to the counters of global lenders, primarily the International Monetary Fund (IMF) and the World Bank, who ask for steep currency depreciation in order to make imports expensive and exports competitive.

This depreciation leads to a vicious cycle of inflation as we are an import-dependent economy. Interest rates are raised to curb demand pressures and hence investment and consumption are compromised and growth stalls.

Keeping this background in view, we must learn from some growth examples. The Chinese model is often referred to in literature. The major factor behind their growth model is the availability of cheap labour and the Chinese leveraged it well.

Pakistan also has ample cheap labour, the only problem with its labour is that the skills level is not up to the mark. So, as a long-term policy measure, we need to invest in labour and improve their skills.

Apart from cheap labour, the second factor that contributed to China's growth was a solid credit base and a robust financial system. As per established research in the case of China, the strength of the financial system and economic growth are not only correlated variables, but they have a bilateral causality, ie, both variables supplement each other.

So, the Chinese growth...

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