Beyond GDP: Rewriting Pakistan’s economic script

If GDP were a reliable measure of national success, Pakistan’s policymakers would have cracked the code to prosperity decades ago. Instead, they— along with much of the commentariat— remain trapped in a numbers game, obsessing over growth while neglecting the true engine: human capital, competitiveness, and productivity.

The problem is not that GDP growth is irrelevant— it’s that it’s a lagging indicator, an effect, not a cause. As seen with Vietnam, China, and other regional countries transitioning into middle-income economies, development demands focus on human capital, governance, and innovation. Pakistan, as ever, reads the script but fumbles the lines. Its education system delivers a paltry 5.1 years of schooling— factoring in what children actually learn— compared to China’s 9.3 and Vietnam’s 10.7. Add malnutrition rates that would embarrass any serious government, and it’s no surprise that Pakistan’s labor productivity lags behind its regional peers.

Between 1990 and 2018, Pakistan’s labor productivity rose by a feeble 45 percent— an annual growth rate of just 1.3 percent. Once dismissed as an international lost cause, Bangladesh managed 190 percent (3.9 percent per year), India 260 percent, Vietnam 500 percent and China over 800 percent. These are not just numbers; they are history’s verdict on who embraced reform and who did not. Pakistan’s ruling class, masters of performative reform, has long treated change as a theoretical concern— useful in speeches, dangerous in practice.

For decades, resources have been funnelled into inefficient Public Sector Development Programs and an uncompetitive private sector shielded from market forces. The result? Growth without development, as William Easterly aptly put it. Cities expand, slums metastasize and inequality deepens, all while policymakers chase the mirage of GDP growth.

But suppose, for a moment, that Pakistan’s leadership undergoes a Damascene conversion and embraces real reform— not paper promises to secure IMF bailouts, but reforms that spring from the leadership’s core, driven by an internal will to overhaul not just policy but mindsets. What would that look like? A radical restructuring of fiscal policy: expanding the tax base, slashing wasteful subsidies, restructuring debt, and reallocating resources toward education, health care and technological upskilling. It would mean dismantling inefficiencies and allowing markets to reward productivity, not proximity to power.

None of this comes without pain. Economic transformation is rarely smooth. This is why governments need a strong mandate— not just to implement reform, but to withstand the howls of those who demand change, then complain at its cost.

The question is never whether reform is painful— it always is— but whether a country endures a V-shaped recovery, like in East Asia, or a lost decade, like Greece.

Javed Hassan

Structural adjustments disrupt markets— inefficient industries must either adapt or disappear, causing temporary dislocations. The reallocation of resources leads to structural unemployment as labor markets adjust. Additionally, uncertainty surrounding new policies often causes a temporary slowdown in investment. Milton Friedman saw contractions as the price of transitioning from unsustainable policies to market-driven growth. As Paul Krugman has observed in past crises, “economic pain is sometimes the price of reform, but the alternative— stagnation— is far worse in the long run.”

The UK’s experience is instructive. In the early 1980s, Thatcher’s monetarist policies, deregulation, and restrictions on union power triggered a sharp recession, with GDP contracting and unemployment rising. However, by the mid-1980s, the UK became significantly more competitive, and growth rebounded. Similarly, Reagan’s tax cuts and deregulation coincided with a deep recession (1981-1982) before setting the stage for sustained economic expansion later in the decade.

Communist Vietnam followed a similar arc. In 1986, it launched the Doi Moi reforms, shifting from a centrally planned economy to a market-driven model. The early years were painful— GDP growth remained sluggish, and state enterprises were gutted. But by the early 1990s, growth hit 7-8 percent annually, setting Vietnam on a long-term path to prosperity. Crucially, the Communist government had public trust— enough to push through painful but necessary changes. 

The Asian Financial Crisis of 1997-98 tells the same story. Thailand, Indonesia, and South Korea saw their economies crater— Thailand’s GDP fell by nearly 10 percent in 1998, Indonesia’s by 13 percent. Yet by the early 2000s, all three had bounced back stronger than before.

Javier Milei’s Argentina is the latest case study. The restructuring is radical. The pain? Immediate. The alternative? More of the same. The question is never whether reform is painful— it always is— but whether a country endures a V-shaped recovery, like East Asia, or a lost decade, like Greece.

The lesson is clear: GDP is a flawed metric when it becomes the sole focus. Even the wealthy Gulf states, which once poured oil wealth into gleaming infrastructure, now recognize that true prosperity hinges on productivity, human capital, and innovation. They are diversifying, weaning themselves off hydrocarbons. The hope, of course, is that it won’t be too little, too late.

Pakistan has even less time to course-correct. If it fails to rewrite its script, it won’t just miss the boat— it will watch South Asia and the Middle East sail past to a brighter horizon.

–Javed Hassan has worked in both the profit and non-profit sectors in London, Hong Kong, and Karachi. X: @javedhassan.