How to Fix the Economy

How to fix the economy
By Shahid Javed Burki
17/02/2009
THAT the country is faced with a serious economic crisis is recognised by the current group of policymakers. It is not certain whether they realise how serious the situation is and what could be its consequences.
Pakistan’s 165 million people of which one-half are under the age of 17 and about 40 per cent live in urban areas are becoming restive because of the deprivation caused by the severe economic downturn.
Security will not return to Pakistan unless the economy is put on a sustainable growth path. That will need considerable work on the part of the government and also help from the community of donors willing to come to Pakistan’s aid. At this time Pakistan’s economy is faced with numerous problems, most of which are a consequence of poor public policy decisions in the past.
The gross domestic product in 2009 is not likely to increase by more than two to 2.5 per cent. With the population growing at 1.5 per cent a year this rate of growth will certainly mean increase in the incidence of poverty to about 40 per cent of the population. This means that 65 million people will be living in absolute poverty by the end of this year, an increase of 15 million. Many of these will be in the urban areas and many in the parts of the country where Islamic extremists are trying to establish their control.
Urban unemployment will also increase sharply especially in large metropolitan areas such as Karachi, Lahore, Rawalpindi-Islamabad and Peshawar. These cities have absorbed a lot of surplus labour from the countryside in the past couple of decades. They have also been the favoured destination of refugees from Afghanistan. Unless jobs are provided to the urban unemployed and incomes are transferred to the urban poor, these developments will lead to restiveness among the urban youth and attract them to extremist causes. What are the options available to the state in these circumstances?
There are several. Of...