Thread by @Ali_Ghaznavi

Thread: How PMLN govt managed to keep the GDP growth rate high

Every time I debate economy with a PMLN supporter I get 2 arguments:
1. $ 100 ka tha
2. GDP growth 5.8% thi

I address point no.1 in the thread below and now I'm trying to address point no.2

https://twitter.com/Ali_Ghaznavi/status/1389006688741740547?s=20

To begin the discussion we first need to understand the multiplier effect.

Multiplier effect basically says that if money is injected in to an economy from a source (govt in this case) that money is multiplied in the economy.

Lets look at an example of how that money is multiplied.

Lets say that the govt starts a mega project that temporarily employs thousands of workers and when all those workers get paid, they all decide to go buy cars.

The demand for cars increases and the manufacturer now needs to employ more people to increase production to keep up with the demand. Now when all these new workers at the car factory get paid, they all go buy furniture and demand for furniture increases.

This chain reaction keeps going on and more and more demand is created in the economy and consumption goes up and businesses start making money and the whole economy starts running.

This is what PMLN did and at first it sounds like a good way to keep things going but there a few issues with this.

First of all consumption driven growth strategy is used when we see that we have unused production capacity and we need to give the economy a push.

Second is that since PKR was overvalued, the demand created was for imported goods and not for local goods, since it was cheaper to import rather than buy local goods. Below is an example from Bloomberg that shows that local industry was not benefiting from this strategy.

Third reason also explains what I said in the first reason. We were spending borrowed money on projects that needed more money to run and at some point we had to stop spending money we don't have.

We saw that in 2019 and all the economic activity was killed at its source since it was unsustainable to keep spending at the same rate, all the temporary jobs that were created were lost and all the unsustainable economic activity was killed.

This is also one of the points raised by IMF in Pakistan's review in 2018 where they reffered to this "high growth" as "weak and unbalanced"

"Khata hai toe lagata bhi hai"
Is mein laganay tak baat theek hai per aukaat se ziada toe na lgaein na.

This thread presents one of the reasons y we call the high growth in PMLN time "unsustainable"

I might add more to this thread as I do more research and get input from others