The central question that the contributors to this volume seek to answer is how to reverse the current prolonged period of low growth and high inflation—stagflation—that Pakistan has experienced over the past five years, and to suggest and implement measures that would decisively move the economy onto a higher, more sustainable growth path. Eight key messages emerge from the studies presented in this volume:

Introduction

The main thrust of this chapter is that, in 2013, Pakistan is finally in a position to move forward and set its economy not only on the path to recovery, but also on a trajectory that will ensure high levels of sustainable growth. This could happen since some of structural problems that have dogged the political system since its creation seem to be nearing resolution. Since there is a close connection between political and economic developments, this advance in the former will have positive meaning for the latter. Pakistan may well be on its way to developing a new way of managing its affairs—meaning the way in which the political system is run, how the economy is managed, and how social interactions take place among different segments of the population. With the adoption of an appropriate set of public policies, it may also be possible to pull the economy out of the deep slump into which it has fallen and achieve a much higher rate of gross domestic product (GDP) growth.

This way of thinking about the future seems much too optimistic for a time that brings grim news every day—of an economy that is not able to move out of the slow growth groove in which it has been stuck since 2007; of national bankruptcy believed to be just around the corner; and of a country increasingly isolated in a world that is busy reorganizing itself. The GDP growth rate has been on a declining trend since the 1965 war with India. For the last six years, the average rate of growth has been just slightly more than 3 per cent a year— only one percentage point above the estimated yearly increase in population.

An unsettled economy and one in which many people fail to respect the rule of law creates costs that are borne largely by the poorer segments of the population.

Today, well into the seventh decade of its existence as an independent state, Pakistan is passing through a critical period. It is navigating a perfect storm and faces not one but several daunting challenges. Extremist forces continue to challenge the state and the Constitution. The economy remains under stress and depends on large external flows to remain solvent. The rate of population growth remains relatively high; every year, the country adds close to four million people to its large population. Its human resources are poorly developed. There are severe power shortages; apportioning the limited supply of power means plunging large areas into complete darkness several times a day and for several hours at a time.

While fully aware of the depth and spread of such problems, we were equally convinced that there were enough “positives” in Pakistan's economic and social systems to think in terms of a better future for the country. It is difficult to practice development economics without a tinge of optimism. Pakistan is richly endowed with resources that could be deployed to produce a higher rate of growth. It has the world's largest contiguous irrigated area, for instance, and if it were to move toward the production of higher value-added crops, agriculture could become an even more significant part of the economy. The country has rich, if largely unexplored, mineral resources and traditional engineering skills that could be developed into supply chains to feed some of the large industrial production systems in the neighborhood. There is also Pakistan's proximity to Asia's two mega-economies, China and India—not only could it develop strong and beneficial economic relations with these two economic powerhouses, but it could also provide land routes for commerce, linking China and India with energy-rich Central Asia and the Middle East.

Supportive public policies are required to make these and other “positives” work for the country.