Macro Bites

Macro Bite # 1

3 min read

Welcome to Macro Pakistani and specifically to Macro Pakistani Bites. Here you will get a bite-sized version of the already digestible information available on the website. The articles vary between 8-10 minutes per read, so the aim is to restrict these emails to between 2-3 minutes. There’s a bit of an issue with attention spans these days, so here goes:

Where did Pakistan’s economy stand pre-COVID-19?

To answer where Pakistan’s economy stood pre-COVID-19, we should start by defining what some economic terms are:

Gross Domestic Product (GDP): Expenditure made by everyone inside Pakistan on all possible finished goods and services in the country. When you look at the entire country’s expenditure in terms of GDP, it is also fair to consider it the income since one person’s expenditure is another’s income.

Gross National Income (GNI): Income from residents abroad in addition to the GDP mentioned above.

Pakistan is not a low income country

Source: World Development Indicators; PM Analysis

Pakistan is a low middle income country like Bangladesh, India, Vietnam and Indonesia since its GNI per capita is higher than the US$1,026 threshold set by the World Bank. Pakistan is, therefore, not a low income country like Afghanistan or Rwanda – whom our country’s leaders compare us to when asking for debt relief. If you want to compare to more countries, our homepage (desktop version) has an interactive map that could help.

Let’s get real (not nominal)

The chart above also shows GDP growth for Pakistan between 6-7%, which is nominal growth. A nominal change is a combination of the change in volume and change in price. Real growth rate (change in volume) and GDP deflator (change in price), make up nominal growth.

Lately, Pakistan has been taking it real slow

Why real growth rate is important is because if you saw headline numbers between 2019 and 2020, nominal GDP actually increased from ~PKR 38 trillion to ~PKR 42 trillion. But as most of you must have heard, COVID-19 hit and our economy contracted which means we had negative real growth.

Note: Change in volume is the real GDP growth and change in price is the GDP Deflator at 2005-06 prices

Source: Pakistan Bureau of Statistics (PBS)

Focus first on the bottom of the chart: you will see change in volume falling pre-COVID-19 in 2019 and then further in 2020 due, in part, to COVID-19. On the other hand, change in price had been increasing in the last few years, contributing to overall increase in nominal GDP.

Numbers are not very nice

If you want to make more sense of the components of Pakistan’s GDP, read the article below. But the main point is that Pakistan was facing a lot of structural issues pre-COVID-19 and growth had already started to slow down. From the chart, you can already see that consumption makes up ~80% of our GDP, which makes us a consumption driven economy. Additionally, you can see the current account (C/A) deficit, which represents the difference between our exports and imports, had been increasing. Not only were we consuming a lot, we were consuming imported products a lot.

Source: Economist Intelligence Unit

Pakistan, in contrast to countries like Bangladesh, has been consuming faster than its income grows. If you spend most of your income on consumption, how will you save? If you cannot save, how will you invest for the future? If you cannot invest, how will your real output grow? If real output will not grow and the population keeps increasing, how will you provide for them? With rising demand, if there is a shortage of goods and services, how will you avoid price increases?

Read the full article in the link below

Where did Pakistan’s economy stand pre-COVID-19?

A comparison of key components of Pakistan’s economy pre-COVID-19 against global benchmarks. Understand where it stood to make better sense of the news!

Read more

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Faiz Ahmed

MBA Candidate at Harvard Business School with prior experience at Bain & Company, International Finance Corporation and State Bank of Pakistan. He is also the Founder of Macro Pakistani.

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