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Legatum Institute: Prospects for Pakistan

January 12, 2010

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Legatum Institute's Jonathan Paris analyses the prospects for Pakistan over a one to three year time horizon. It looks at economic, political, security, and bilateral issues.

There are three possible scenarios for Pakistan over this relatively short time horizon; Pakistan probably will avoid becoming a "failed state" and is unlikely to find a "pathway to success" but, as Pakistan confronts a myriad of vexing challenges, the most likely scenario is that it will "muddle through".

1. Economy

Looking at the economy optimistically, in just over 20 years, Pakistan will surpass Indonesia and become the fifth most populous country and the one with the most Muslims. Its youth bulge provides it with a baby boom which, if educated and employed, could provide its economy with a demographic dividend long after the equivalent bulges in China and India have aged and retired. Pakistan has an opportunity to leverage its domestic consumer market to attract multinationals and build up competitive economies of scale in industries like food, electronics, autos and engineering for the export market. Peace with India would turn Pakistan into an energy transit point and geographic hub for a possible South Asian boom.

Looking at the economy pessimistically, one sees a persistent leadership and public management deficit, loss of credibility in the international markets due to political instability and the extraordinarily long period of sustained growth required for Pakistan to make a dent in its poverty, unemployment and underdevelopment. The lack of investment in education makes it difficult for Pakistan to emulate India in becoming a high-tech hub, and the growing violence does not make tourism a viable option in the short term. In meeting the developmental challenges ahead, it does not help that the population is growing at a high 2.7% and that the youth bulge in its demographic profile shows few signs of abating any time soon. This author finds the pessimistic economic view somewhat more likely, especially in the next one to three years.

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