Against the odds

Officially, Pakistan’s economy is in almost as bad a shape as the state. The government’s statistics show one of the lowest GDP growth rates in emerging Asia — the annual average over the last five years was 3.5 per cent. But it’s hard to reconcile that disappointing number with the busy restaurants of Karachi, record Toyota sales and a booming stock market.

The grim security situation fits with the official numbers. Violence against the minority Shia community has taken an ominous turn. Taliban rebels are raiding army installations, even as US drone attacks against militants remain highly unpopular. Meanwhile, the government is dysfunctional. One prime minister was held in contempt for refusing to obey the Supreme Court’s order to investigate corruption charges against President Asif Ali Zardari and had to leave. Another may meet the same fate this month.

But with the government weak, “underground” economy of unreported cash transactions is strong, according to Finance Ministry officials. The 22 percent share of currency in Pakistan’s broad money is much larger than 14 per cent in neighbouring India. This cash trade has been helped by high cotton prices in 2010 and 2011. Some of that is still being spent, says Karachi stockbroker Asif Qureshi. And on education and healthcare, charities have been able to make up for some of the failings of the government.

Still, the unofficial health of consumption cannot lead to much without much more investment. The share of private investment in the economy last year was 8 per cent, according to the World Bank, not much higher than in Sierra Leone.

Progress is likely to be slow, since major investments require confidence in the future, which awaits political stability. While waiting, a saner energy policy could do a good deal. A third of power demand is unmet because provincial governments don’t clear their bills to the power distribution companies in a timely fashion. As a result, power producers aren’t paid. A crackdown on high levels of transmission losses and theft could ensure that companies get the power they need to expand.

Pakistan’s economy is not a wasteland. It doesn’t have to turn into one.