ISLAMABAD: Pakistan’s economic model, which has traditionally been driven by consumption-led growth, is unsustainable in the long term, says a leading economic expert.
Therefore, it is important for Pakistan to consider alternative growth strategies that are more sustainable and inclusive in order to achieve more balanced and equitable economic growth.
Haroon Sharif, former chairman Board of Investment (BoI), said while talking to WealthPK that Pakistan being a consumption-driven economy faces the structural issue of low savings. He said the main dilemma for slow growth cycles is that these are propelled by private and government consumption, not by higher investment.
“If we look at private consumption and exclude imported consumption, Pakistanis spend the highest proportion of their income on household fuels (electricity, water). So, it is difficult for them to make savings,” he pointed out.
Haroon stated that while a consumption-led growth strategy may provide a short-term boost to economic growth and reduce poverty, it may not be sustained for long-term stability.
“It leads to high levels of debt and inflation, an over-reliance on imports, a lack of a strong manufacturing and export sector, as well as an increase in income inequality and a decline in economic stability and growth,” he said.
The former chairman of BoI said Pakistan’s investment to GDP (gross domestic product) ratio remains below 15%. He pointed out that low investment is one of the core reasons why Pakistan’s growth in exports has been negative over the years as high consumption and low savings lead to lower investment.
“Now the time has come we cannot borrow much because repayment capabilities are shrinking,” he said.
Haroon suggested that Pakistan should actively encourage the development of new industries, such as technology and services, which have the potential to create high-paying jobs and attract foreign investment. He said the key focus should be made on diversifying the economy, particularly away from reliance on agriculture and textile.
“Additionally, Pakistan should focus on fostering a more enabling environment for the private sector and small and medium-sized enterprises (SMEs) to grow and create jobs, as well as improving access to education and skills training to increase human capital and productivity,” he suggested.
The former BoI chairman said persistent macroeconomic instability has discouraged savings and investment in the country, resulting in low-aggregate investment and fluctuating output levels.
“Now is the time for the country to make crucial decisions, such as restoring and sustaining macroeconomic stability, increasing its tax base, and promoting investment by addressing structural and regulatory impediments. Therefore, it is essential for Pakistan to adopt a more sustainable and balanced economic strategy that focuses on long-term growth, stability and development,” he added.
