Pranav—What’s up with the Pakistani economy?

Everyone knows Pakistan’s in an economic blackhole it can’t seem to escape.

I didn’t know much more than that until now, though. My understanding of the country was, in essence, “army bad, terrorists bad, economy poo-poo.” So, to develop my very first mental model of its economy, I turned to this article.

The gist is this: Pakistan, much like us, is a consumption-led economy. Consumption makes up almost 90% of its economy. Investments make another 15-20%. (How does the math work? I have no clue. Maybe their imports are just that high?)

That doesn’t mean Pakistanis consume a lot. More likely, it means there’s very little else that they do. And things are getting worse; the investment going into Pakistan’s formal economy is at a 65-year low.

So why does nobody invest in Pakistan? I’m not talking about foreign investment, mind you — I mean normal unsexy investment — y’know, building a shop, buying a tractor, that sort of stuff. The article mentions a few reasons:

  • The government runs on borrowed money. That means it can’t spend on the economy itself. Right now, ~60% of its federal funds apparently go into just servicing its debt.
  • The author doesn’t say anything about this, but there’s probably also a chance that the government crowds out private borrowing. ChatGPT confirms my hunch (though I’m pretty sure it’ll confirm any hunch I have, if I try hard enough).
  • Pakistan began as a country of land-owners. There’s a theory around that Nehru and Patel didn’t oppose partition because those landowners would have wrecked their land redistribution project. I don’t know if that’s true, but that land-owning legacy shows. Many of its policies incentivise shady real estate deals, rather than investing in the formal economy.

All of this means that Pakistan is currently undergoing a phase of de-industrialisation. Every year, the contribution of Pakistani industry to its economy falls by ~0.6%. That’s tragic.

Krishna—Russia doesn’t like China?

I know it's a Bhuvan thing to be obsessed with China, but please bear with me. I came across this FT article that says Russia is imposing fees to get rid of the flood of cheap Chinese cars because it has affected Chinese manufacturers.

Here's an interesting fact: Chinese vehicle exports to Russia increased sevenfold from 2022 to 2023, as sanctions over the war in Ukraine cut Russia off from Western automotive brands.

Russia bought up more than 1mn Chinese vehicles last year, soaking up about 30 per cent of its neighbour’s petrol car exports. The surge handed Chinese brands 63 per cent of the Russian market, and sent local brands’ market share down to 29 per cent

Russian authorities are pushing back by:

  • Raising "recycling fees" (functioning like tariffs) for most passenger cars in January, more than double the September level
  • Planning to increase these charges by 10-20% annually until 2030
  • Finding safety violations in three major Chinese truck makers and banning one model
  • Signaling new compliance and testing checks for imported vehicles

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