Pakistan’s economic woes have reached unprecedented levels, with the country caught in what noted economist Atif Mian describes as a “poverty trap.” According to Mian, a Pakistani-American economist and professor at Princeton University, this trap is the result of decades of economic malpractice. He stresses that incremental changes will not suffice; only a significant, coordinated policy shift can reverse the nation’s fortunes.
Mian’s assessment is based on a troubling trend of declining growth rates since the 1980s. In a recent thread on social media platform X, he presented data showing that Pakistan’s growth rate has steadily declined over the decades, leading to the current situation where inflation is at an all-time high and economic growth has nearly ground to a halt. Mian highlighted that the last two years, 2023 and 2024, stand out as the worst in Pakistan’s economic history, even surpassing global crises like those in 2009 and 2020.
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The Princeton professor emphasized that poverty, while devastating, can also present opportunities. He pointed out that impoverished populations are often willing to work for less, and with the right government policies to harness their potential, growth and prosperity can follow. Mian cited the examples of Vietnam and South Korea, countries that transformed their economies through effective governance and targeted reforms.
Rising Despair and the Exodus of Talent in Pakistan
Mian‘s analysis is not just based on statistics but on the palpable despair he has observed on the streets of Pakistan. He noted that there is a widespread feeling of hopelessness among the population, with many people expressing a strong desire to leave the country. This sentiment is supported by data showing a significant increase in Google searches for the term “visa” in Pakistan, indicating a growing interest in emigration.
The sense of despair is compounded by Pakistan’s ongoing struggle to secure financial stability. The country is currently pursuing its 24th loan program with the International Monetary Fund (IMF) in a bid to stabilize its economy. Although the government recently reached an agreement with the IMF, experts remain skeptical about the effectiveness of these measures. They argue that without substantial cuts in government spending and a more responsible approach to economic management, Pakistan will continue to rely on external bailouts, further entrenching its economic vulnerabilities.
In June, the government passed a tax-heavy budget for the fiscal year 2024-25, which has been met with criticism from business experts. They contend that the government has failed to address the entrenched tax privileges enjoyed by certain sectors, instead opting to increase taxes on the salaried class. For those earning between Rs600,000 to Rs1,200,000 per year, the tax rate has doubled from 2.5% to 5%, adding further strain to an already struggling middle class.
Lessons from Vietnam
Mian’s observations are echoed by former Federal Board of Revenue Chairman Shabbar Zaidi, who highlighted the stark contrast between Pakistan and Vietnam’s economic trajectories. In 1990, both countries had exports valued at $10 billion. However, Vietnam’s exports have since skyrocketed to $600 billion, while Pakistan’s have languished at $30 billion. This comparison underscores the consequences of Pakistan’s inconsistent policymaking and lack of focus on export-led growth.
The economist argues that Pakistan’s economic stagnation is not a matter of fate but the result of deliberate policy choices. He presented a chart showing the continuous decline in Pakistan’s growth rate since the 1980s, with a particularly sharp drop in recent years. This decline, Mian asserts, is a clear indicator of a stagnating economy that has failed to adapt to global economic shifts.
Mian’s call for a “big policy change” is a clarion call for the government to take decisive action. He warns that without such a change, Pakistan will remain trapped in its current cycle of poverty and economic stagnation. The economist emphasizes that this change must be coordinated and credible, sustained over time to have a meaningful impact on the nation’s economic future.
The Way Forward: Courageous Decisions Needed
Atif Mian’s analysis paints a bleak picture of Pakistan’s current economic situation, but it also offers a roadmap for recovery. The key to breaking out of the poverty trap lies in bold, courageous policy decisions that prioritize long-term economic stability over short-term political gains. This includes cutting non-productive government expenditures, implementing structural reforms, and creating an environment conducive to investment and growth.
Mian’s emphasis on the need for coordinated and credible policy changes highlights the importance of consistency in governance. Pakistan’s economic challenges are not insurmountable, but they require a unified approach that involves all stakeholders. By learning from the successes of countries like Vietnam and South Korea, Pakistan can chart a course toward sustainable growth and prosperity.