Raise Exports, Attract Foreign Investments

Gross domestic product (GDP) is calculated by adding up public and private consumption, investments and net exports (exports-imports). As Pakistan's GDP has more than doubled over the last decade, itsFDI has increased dramatically and its exports have grown at 16% CAGR till 2007, the consumption component has continued to be stubbornly high at about 80%, with about 20% of it coming from investments and exports. In spite of the fact that about 80% of Pakistan's GDP depends on domestic consumption, the nation has been highly vulnerable to external shocks related to the need for imports, particularly the oil price volatility. Since the major missteps by the Zardari government in 2008, the economic crisis has worsened as the investors have pulled out and business confidence plummeted amidst serious security concerns raised by the Taliban insurgency in the country. It has also hurt Pakistan's exports. The recent devastating floods have added to the already serious economic woes. The only positive news has been the rising remittances by overseas Pakistanis which increased to nearly $9 billion last year.

In addition to reviving the national economy from its current slump, the biggest long-term challenge for Pakistan's economic leadership is to improve the nation's ability to deal with external and internal shocks. This will require learning from the experience of India or other Asian economies in building sufficient internal revenue base for public expenditure, attracting greater foreign investment, expanding and diversifying exports and strengthening hard currency reserves. Inability to deal with these challenges will doom Pakistan to perpetual dependence on IMFand consequent loss of sovereignty to it.