The following piece was written by me for educating
my non-Indian friends. So, pardon me if some comparisons are made with India in the narrative. This is part of a larger piece of why Pakistan is a failed state. Parts of it may be dated, though some updates were made.
The undeclared war for both India and Pakistan, at the start of their independent existence in August 1947, was to build the nation-state from the rubble of two hundred years of slavery and to better the quality of lives of their peoples. Various social and economic indicators in both countries cried for urgent attention. They both started with similar economic status, if not slightly better in the case of Pakistan. But, the political, economic and social costs of Pakistan’s overt and covert wars with India have damaged her irreparably. Pakistan has not only lost the race with India, which was not surprising and which should not have been attampted anyway in the first place, but also with other Islamic countries which were more or less at the same stage of development at the time of its independence, like Egypt or Malaysia or even other regional or Asian countries. Emma Xiaoqin Fan, Asian Development Bank wrote in her "Pakistan Public Debt: A Brief Overview" the following: Due to the inability to service external debt there were two consecutive rounds of debt rescheduling by Paris Club members and one from the quasi-London Club between 1998 and 2001. Pakistan had to seek exceptional financial arrangments from the International Monetary Fund in January 1999, after facing a severe balance of payments crisis. By circa 2007, Pakistan’s social and economic indicators had reached abysmal levels. In c. 2009, the forum of the ‘Friends of Pakistan’ consisting of aid donors to Pakistan, refused to give any more cash to a severely cash-strapped Pakistan, opting to route their funds only through the IMF for specific projects. The Kerry-Lugar-Berman Bill (PEACE Act) was also an outgrowth of similar concerns on the misuse of funds. Thus, Pakistan grossly underestimated or did not even pay attention to the ill-effects of its rivalry to match India, low-intensity proxy war in Kashmir and its support to terrorism, on its own economy and society, proving again how a shortsighted Pakistani tactical planning vis-à-vis India, undermines its overall strategic priorities in the end. In May, 2007, Pakistan’s renowned columnist Khaled Ahmed estimated the cost of the Pakistani support for the jihadi terrorism in Jammu & Kashmir as USD 2.6 Billion p.a. It is at least possible to estimate the economic costs of Pakistan’s perverse policies, but, incalculable has been its sociological damage, which has made the society become divided, sectarian, violent and fundamentalist.
The annual average GDP growth rate for India since 1980 has been around 5.6 % and is conservatively expected to be between 7 – 9 % for the rest of this decade, though Indian leaders are planning for a double digit growth for next two decades. At current rates of growth, Indian economy will dwarf Pakistan’s by twenty times by circa 2025. With more than 2% population growth (compared to India’s 1.2 %) during that period and a further deterioration in its political, economic and security situation due to its wrong policies and misplaced priorities, Pakistan can only be expected to perform worse than any optimistic predictions. In c. 2010, Pakistan’s Business Recorder newspaper estimated population growth between 3.1 to 3.3%. (Pakistan’s last census was in c. 1998 and no attempt at running a nationwide census has been made since then) One proof of Pakistan’s wrong priorities is that while India’s poverty has decreased from 45% in 1983 to 25% in 2002, that of Pakistan has gone up from 17% to 33% during the same time and by 2003 was estimated at 40%. The population growth of Pakistan during the Islamic regime of Gen. Zia-ul-Haq in the 80s was an unsustainable 3.5%. The per-capita income on Purchasing Power Parity (PPP) basis, which was equal between India and Pakistan in 1990 has gone up to USD 2820 for India while it is only USD 1860 for Pakistan, by 2003. The unceasing ambition to inflict damage on India both covertly and overtly and achieve an unattainable parity with India in military and political terms has spelled economic doom for Pakistan and the constant shadow of the armed forces in the governance of the state has only aggravated the situation. For example, during fiscal 1990, while Pakistan’s GDP was USD 40 Billion, it spent close to USD 3 Billion on defence, which is almost 8% of its GDP. It is suspected to be much more than that as most of the military spending was not directly accounted for under defence budget. In the period between circa 1970-2000, Pakistan’s defence expenditure varied between 4% and 9% with an average of 6% of GDP while that of India was between a minimum of 3% and a maximum of 4% with an average of 3.25%. After the devastating floods of August 2010, when over 20% of Pakistan’s land mass was reportedly flooded, the economy took a deep dive with the government being left with money for only two month’s worth of salaries for the government employees. And, yet, the budgeted 13.6% funds for the military continued unabated. In spite of such a huge expenditure for an impoverished nation, the asymmetry between the armed forces of Pakistan and its arch rival India have been worsening for Pakistan. Even as late as circa 2007 debt servicing and defence were eating up all revenues leaving not much for development, and this in spite of the fact that the US re-scheduled a lot of repayments, eased terms and conditions, doled out a lot of money and supplied military hardware at cheaper prices all in exchange for co-operation for the “war on terror”. For example, the US rescheduled Pakistan’s repayment of loans owed to the Paris Club (US $ 12.5 Billions) for 28 years after the 9/11 incident. The Asian Development Bank’s report in circa 2007 clearly spells out the huge defence outlay compared to other social sectors. Though the post 9/11 years saw a lot of investment into Pakistan from the Islamic countries of the Middle East due to fear of parking these funds in Western countries, they were mostly into capital accounts or speculative investments such as real estate rather than in manufacturing. However, the Prime Minister Shaukat Aziz continued to present a rosy picture of the economy until the democratic government headed by Yousuf Raza Gilani took over and held the Shaukat Aziz government responsible for ‘figure fudging’ and creating an ‘economic mess’. In fact, most Pakistani governments indulged in the practice of tampering with economic statistics to give a good account of themselves without worrying about the consequences.
By c. 2008, Pakistan was desperately in need of funds for meeting its balance of payments debts. Its external debts had increased to USD 55 Billion from USD 44 Billion a year ago. It had to go to the International Monetary Fund (IMF) for support and accept their stringent conditions. Pakistan got a loan of USD 7.6 Billion but was forced to control its soaring fiscal deficit, reduce its inflation, eliminate borrowing by the Government, free the stock and foreign exchange markets from Government interference, widen tax net, give autonomy to State Bank of Pakistan (SBP), reduce borrowings from SBP, reduce huge subsidies in power sector etc. Till late 2010, Pakistan was unable to impose GST (General Sales Tax) because of opposition, especially from the Sind. Pakistan was also asked to increase electricity charges by 35% especially at a time when power-cut for several hours was rampant throughout the country leading to rallies and protests. Unable to take the burden, the Pakistani Senate passed a unanimous resolution in September, 2010 asking international donors and lending agencies to write-off Pakistan’s entire debt burden.
The rulers of Pakistan did not themselves invest enough in education, health, and literacy, areas in which other countries of the Indian subcontinent including its youngest and poorest member, Bangladesh, far outstripped Pakistan. According to a World Bank report, Pakistan’s spending on education is only 2.3% of the Gross National Income (GNI) while the average across the other South Asian countries was 3.6%. This has shown up on the literacy rates in Pakistan. Roughly 46% of Pakistanis are illiterate and there has been a steady drop of enrollment in primary schools which now stands at 65%. On the other hand, a recent report by Goldman Sachs predicts India to be the third largest economy in the world by 2050. Even in human development, for example, India produces more than 5000 Ph.Ds per year from its educational institutions, apart from those who qualify from abroad, which is more than the entire stock of Pakistan’s. It is no wonder therefore that more than 100 of the Fortune-500 companies have setup R&D centres in India and more are on the way.