Beyond arithmetic

Pakistan's economy registered a real GDP growth of 3.7% in the fiscal year that just ended, marking the fastest expansion in four years. However, this national economic performance does not reflect the reality for the median household, highlighting a significant disconnect in Pakistan's economic policy.

The gap between official GDP figures and the actual welfare experienced by households can be understood through four key adjustments. Firstly, population growth means that the 3.7% expansion translates to a mere 1.2% per capita. Secondly, GDP measures production, not income; it overlooks the substantial $42 billion sent home annually by Pakistani workers abroad. Gross national disposable income, a truer measure of welfare, stands nearly a tenth higher than GDP. Thirdly, distribution matters: growth driven by corporate profits and financial assets benefits the wealthy, while wages for the poorer half have failed to recover from inflation shocks. Finally, the prices faced by the poor are critical; food and energy constitute over half their budget, meaning food inflation outpacing the general index distorts official statistics of their condition.

When these factors are applied over the last five years, the narrative shifts dramatically. While headline GDP expanded in four of those years, welfare terms tell a different story. Fiscal year 2023 alone, with headline inflation near 30% and core inflation around 18%, a gap disproportionately borne by the food-heavy budgets of low-income households, destroyed more household welfare than the other four years of growth combined. Consequently, the median household remains no better off than five years ago, and the poorest two-fifths have seen their situation deteriorate.

The article points to structural issues explaining this disparity. Two in five Pakistanis are children, and fewer than half of working-age adults participate in the labor force, with women's participation even lower. Less than a third of the population is productive, while the economy generates jobs for only about half of the nearly three million new labor-market entrants each year. Many find work in undocumented sectors with poor compensation, or remain unemployed. Remittances, which sustain household consumption, are essentially the wages of this exported workforce. The article questions why a decade of stagnant household welfare is met with relative calm, suggesting both social and economic reasons, including the "exit substitute" of young people leaving the country for work abroad.