The World Bank Latest Development update on Pakistan has mentioned two trends which could bode ill for the future, and which indeed throw into doubt the entire economic framework that is being applied by the Washington Consensus institutions, including the World Bank, to Pakistan as well as to other developing countries. On the one hand, exports, far from picking, form a declining proportion of the GDP, while on the other declining poverty has not led to an improvement in living standards. Though the theory of export-led growth leading to a decline in poverty, is being pursued by the government, it does not seem to be working.
The theoretical basis for this is that of Comparative Cost Advantage, which says that every country (or rather economy), should produce only what it can sell abroad, that it makes more sense to import cheaply than to produce at home dearly. One problem with this is that people need not have settled where there was comparative advantage in anything, so states exist that do not have a comparative advantage in anything. Pakistan needs to import edible oil fuel and pharmaceutricals. Exporting textiles or such raw materials as wheat or ores does not apparently cover expenses, so the country has to borrow or rely on remittances. Remittances are actually the proceeds of exported labour. However, labour exported also means consumption exported, for while overseas Pakistanis earn abroad, their consumption is lost to the local economy. Though poverty has gone down to 22.2 percent, and should reach 21.5 percent by the end of the fiscal year, it is not accompanied by a rise in living standards.
The World Bank explains this by saying that there is insufficient growth in the economy to support a rise. This is a direct indictment of the supplyside economics being forced on the government by the Washington Consensus, policies which have been imposed on other countries/ The World Bank does claim that the Pakistani economy contains potential for an additional $60 billion in exports, and makes this dependent on actions by the Pakistan government, such as lowering tariffs, reforming regulations, high energy rates and poor logistics. While exports are necessary, the trend towards exporting raw materials rather than finished products is not healthy. There must a revisiting of the policy of borrowing, for it is the policy that got it in its present indebted situation in the first place.
