Please click here to full Bloomberg Article.

 

Pakistan’s Economy Is a Pleasant Surprise

 

Each year I perform the exercise of picking what I think is the most underrated (and overrated) economy in the world. Past winners have included Germany, Mexico and, more recently, the Philippines. The designation is tricky, because it can go to an ailing country with an excessively bad reputation or maybe to a known star with virtues beyond what people understand. This year I see a clear winner: Pakistan.

It’s obvious the country does not have a great external reputation. In a recent poll of favorability, Americans ranked Pakistan at No. 136 among 144 nations. As an experiment, I typed “Pakistan” into Google’s news search and the leading entries referred either to terrorism issues or to the possible extension of President Donald Trump’s travel ban.

Yet most of Pakistan’s developments are fairly positive. For instance, the stock market has put in a good performance, rising 46 percentover the last year. Emerging-economy equities are not in every way representative of how the broader economy is doing, but again we are talking “underrated” here.

Gross-domestic-product growth has hovered in the range of 4 percent and now may be reaching 5 percent. That’s not going to rival recent Chinese performance, but it is enough to put the economy on a fairly positive path. Since 2002, the rate of poverty has fallen by half, and over the past three years the rate of terrorist deaths has declined by two-thirds. It’s now the case that 47 percent of Pakistani households own a washing machine, up from 13 percent in 1991, and retail is booming more generally.

 On the macro side, inflation is not a problem, the country has staved off a foreign-exchange crisis, and it is rebuilding its reserves. The debt-to-GDP ratio is high at more than 60 percent, but the country has graduated from its adjustment program with the International Monetary Fund and appears to be in a stable fiscal state.

Or consider the comparison with India. India has established a reputation as one of the world’s most dynamic and rapidly growing economies. Yet until 2008, Pakistan and India had roughly comparable per capita incomes. The two countries have a common history and a lot of common culture. Is it crazy to think that Pakistan might pull even once again?

 

Please click here to full Bloomberg Article.