Consumption-driven growth: an economic nightmare

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LAHORE: Pakistan’s economic growth is widespread instead of domestic production and investment, which causes repeated external account crises. Consumption -based growth mainly increases economic differences through income, credit and unequal access to assets.

The growth generated by consumption benefits people with inadvertently more disposable income, as they can spend more. This increases the demand for catering equipment and services to middle and high income groups, ignoring the basic needs of the low -income population. Increasing consumption often accelerates inflation, and eliminates the real income of the poor, which spends a large part of its earnings on accessories such as food, housing and utility. The rise of consumption is often financed by credit extension, which benefits those who access loans – usually wealthy. As a result, the property expands inflation in the prices of assets in stock and stock, which expands the gap of wealth as the property ownership classes multiply their wealth.

Consumption -led growth creates jobs in services and retail sectors, which are often low wages and unsafe. On the contrary, investment-led growth-such as infrastructure and manufacturing-generates more stable and better salaries. When consumption surpasses domestic production, the dependence on imports increases, causing trade deficits. It weakens local industries and raises fluctuations in the exchange rate, which affects the poor through unpredictable inflation.

The current economic growth of Pakistan is primarily consumption, which is fuel through domestic and government spending rather than investment or exports. This short -term consumption model disrupts long -term production capacity, leading to the risk of external shocks such as currency shortages, inflation and debt crisis.

Private consumption accounts for 80-85 % of Pakistan’s GDP-which is significantly higher than that of investment and export economies. On the contrary, investment-led economies like China have a level of 40-50 % of GDP consumption levels, running the rest of the capital through the formation and exports. In 2023, GDP was about 60.3 percent in domestic consumption costs in India, while in Bangladesh, it was about 68 68.6 percent. Similarly, South Korea’s domestic consumption costs were 48.9 % of GDP, while in Indonesia, it contributed more than half of the country’s GDP.

During rapid, consumption -driven growth periods, individuals can promote non -realistic financial expectations, such as excessive borrowing for lifestyle costs. On the contrary, moderate, employment growth focuses on employment safety and wages, which leads to more rational economic and electoral practices.

Pakistan’s investment proportion of GDP is less than 15 %-the lowest in the region is indicating that people and businesses are spending instead of re-investing in productive assets. In comparison, countries like Bangladesh and India maintain a savings rate of more than 25 %, supporting long -term investment.

An important part of Pakistan’s consumption depends on imported goods, which in turn causes a continuous trade deficit and imbalance in the current account. Consumer goods, including vehicles, electronics and food, are a large part of imports, while exports are low and unreasonable. The manufacturing sector contributes only 13-14 % to GDP, which reflects weak industrial growth. Investing in productive sectors like machinery, factories and infrastructure is slow, which leads to unemployment.

The government relies heavily on taking domestic and external loans for expenses, especially subsidies, government salaries and financing for defense. Compared to current costs, the cost of growth-is important for a long-term economic growth.

Whenever credit availability increases – usually through loose monetary policy – consumption increases, especially in real estate, automobiles and imported goods. This leads to increasing imports, currency depression and inflation, eventually force policy adjustments that slows down the growth. The cycle repeats itself as the increase in investment and productivity is weak. Without the same productivity, increasing demand fuel inflation and weakens the rupee. Without increasing industrial and export, employment opportunities are very low, promoting income inequality and youth unemployment.

FF to achieve sustainable economic growth, Pakistan must increase domestic investment in manufacturing, infrastructure and technology. It needs to increase its export base outside textile and increase value -added production. The economy is also essential to bring more businesses to the tax net and encourage productive investment.