A demographic liability

Ammar Habib Khan
Sunday, Nov 13, 2022

Dozens of countries around the world have successfully improved the living standards and prosperity of their citizens by adopting one path or another. The path to becoming a middle-income country or even an upper-income country exists, but it’s a path that does not align with the path predominantly chosen by politicians, and rentier policymakers. The path is a treacherous one, and involves policy tweaks with a long-term orientation, rather than short-term fixes that are a norm in our case.

Pakistan has one of the fastest-growing populations in the world, a potential demographic dividend that can become a demographic liability if the status quo continues. A human capital development plan that covers both immediate needs, as well as long-term capacity development, is critical. There are more than 23 million children out of school in Pakistan, and the number is only deteriorating over the last few years. Almost half of the children in the country remain out of school.

The state has phenomenally failed in educating half of its future workforce, while those that are in school aren’t doing too well either. There are only a few thousand who can afford a high-quality education, while the public education system remains in tatters as evidenced by the gradually deteriorating results of various secondary, and higher education boards across the country. A population that is not educated, or skilled, cannot differentiate itself or even demand a premium in the global marketplace for talent. An unskilled workforce acts as a drag on economic growth, as the country cannot embark on activities that are heavily reliant on intellectual capital.

An unskilled and uneducated workforce effectively acts as a drag on the productivity of an economy. Productivity can only be increased once an economy can generate more output from similar levels of input, and this can only be achieved through the acquisition of scale and technology. This increases overall labour productivity. However, in our case labour productivity has largely stagnated, while in the rest of the world it continues to improve. We cannot have scale or technology with an unskilled workforce. Educating the children of today and imparting skills such that the workforce is equipped to deal with the technological and economic demands of the next few decades remains critical.

If education continues to be an afterthought and remains on the back burner, we shall never be able to get on a path of sustainable economic growth. Education and the development of intellectual capacity are prerequisites. Without universal literacy, no country ever has been able to graduate to a middle-income or upper-income country on the path of development. It will take herculean efforts over a generation or two before we can achieve universal literacy, and improve overall standards of education. If these efforts are not put into place, the long-term macroeconomic outlook for the country will remain bleak. We may jump from one boom-bust cycle to another, funded by borrowed capital, but we may never be able to attain sustainable economic growth.

Before a population can educate itself, it needs to feed itself. Pakistan has one of the highest rates of malnourishment among its children. Despite being an agrarian economy, food insecurity is high. A distorted market structure has led to a situation where the country has to import even basic staples like wheat. The absence of supply chain infrastructure results in colossal wastage of agricultural produce, despite there being food insecurity. A country that cannot feed itself cannot educate itself, and consequently cannot attain sustainable growth, or improve the livelihoods of its population base. The country remains inherently exposed to vagaries of the international commodity market as it relies on importing key staples, while not doing much on improving local productivity and developing an agrarian export base, an area where the country has competitive advantage.

Agricultural yields continue to be among the lowest as compared to peers, and other economies in similar stages of economic growth. With the exception of a few products, yields have largely remained stagnant over the last decade even though the population continues to grow. The country imports more than $4 billion of basic food staples on an annual basis – an amount that will continue to grow as the population and overall income levels grow.

As income levels increase even marginally, a shift to greater demand for protein will unlock even greater demand for importing of its key agrarian inputs, thereby further increasing the food import bill. The absence of a robust supply chain infrastructure, low yields, and a distorted market often result in shortages which drives up food inflation, making it increasingly difficult for households to afford food.

As food affordability reduces, so does calorie and micronutrient intake, which directly has an impact on the ability of a population to learn and educate itself, as stunting kicks in. It is estimated that almost 40 per cent of children under five years in Pakistan are stunted. In the presence of political brouhaha and an elite that dominates all discourse, very little or nothing is being done to solve these structural issues. The inability to feed our children has led to stunted intellectual development, which is going to get worse as malnourishment continues to increase.

A well-fed and educated workforce is critical for any transition towards a middle-income economy, or for the relative prosperity of the people across the country. A sovereign that isn’t able to feed its population or educate its children cannot ever attain broad-based sustainable growth. There may be boom-bust cycles driven by the injection of external capital, or yet another round of subsidies, and amnesties. But the duration of these cycles continues to shorten.

The economy has been sustaining itself on borrowed capital, and even borrowed time. The inability to address structural issues has led us to a scenario where it’s already too late. We can either fix these structural issues and ensure broad-based growth for everyone, or we can continue operating an elite-focused economy that continues to survive courtesy of one bailout or another. We can either feed and educate our children and strive towards a more prosperous, healthy, and equitable Pakistan, or we can continue with the status quo which guarantees economic contraction in real terms for people across the country, while a small elite benefits at the cost of everyone else.

If the status quo continues, the answer to the question is a very clear no.

The writer is an independent macroeconomist.