ECONOMY OF PAKISTAN:

Economic and social outcomes in Pakistan over the last sixty years are a mixture of paradoxes. The
economic growth rate has averaged 5 percent annually since 1947—a feat achieved by very few
countries. Political instability in the name of religion, sectarianism, power, and economic disparities has
made the country unstable and volatile. Various countries who were behind us in the 60s have surged
far ahead in economic and social indicators Pakistan has thus been unable to realize its potential.

Pakistan remains at a crossroads and has been for several years now. It fuels economic growth by heavy
domestic and external borrowing and gives a temporary boost to its private and public sectors.

PAKITAN’s ECONOMIC AND POLITICAL HISTORY:

Since Pakistan's economic issues are always solely blamed on political instability, let us revisit the
country's political and economic history chronologically to gain a better understanding of the underlying
factors

» The Flat Fifties, 1947 to 1958

» The Golden Sixties, 1958 to 1969

» The Socialist Seventies, 1971 to 1977

» The Revivalist Eighties, 1977 to 1988

» The Muddling Nineties, 1988 to 1999

» The Reforming Hundreds, 1999 to 2007

» Democracy and recent years

POLITICAL INSTABILITY AND ECONOMIC GROWTH

In the past 76 years, thirty-three years of military rule, and frequent changes of democratic
governments Pakistan faced chronic political instability. Economic policy on the other hand has only
changed twice in political history. 4 The liberal private sector-led growth model that was put in place in
the 1950s and accelerated in the 1960s. which was ruled back by socialist reforms in the 1970s and the
revival of liberal policies again in 1977.

With no long-term economic plan, the initiative in driving the economy can be credited to the private
sector with 90 percent of the national income. Agriculture, wholesale, retail, transportation, finance
insurance, and construction are all led by private sectors. The government only manages public
administration, defense services, and public utilities. Which is 10 percent of the GDP

Though the political transition is challenging and causes uncertainty and economic decline However,
despite these short-term losses caused by political volatility, economic recovery in Pakistan has been
resilient, and the positive long-term secular economic movement has not been offset. The military
regime cannot be a solution. The transfer of power from military to civilian regimes in 1971,1988, and
2008 are marked by the macroeconomic crisis.
CHALLENGES TO THE ECONOMY OF PAKISTAN

1. Inflation: One of the most pressing issues facing the economy is inflation. Inflation is a sustained
rise in overall price levels. Moderate inflation is associated with economic growth, while high
inflation can signal an overheated economy. If economic growth accelerates very rapidly,
demand grows even faster and producers raise prices continually., Inflation last month surged
to 31.5 percent, its highest level since 1974, according to the latest figures released by the
Pakistan Bureau of Statistics on March 1., which has eroded the purchasing power of consumers
and contributed to economic instability.

2. Fiscal deficit: Pakistan's fiscal deficit, which is the difference between government revenues and
expenditures, is a significant concern. The country has been running a high fiscal deficit for
several years, which has resulted in an unsustainable level of public debt. the fiscal deficit during
Jul-Dec FY2023 has been contained at 2.0 percent of GDP according to the monthly economic
update and outlook for February 2023

3. Dept-to-GDP ratio: The debt-to-GDP ratio is a commonly used indicator of a country's economic
health. It represents the amount of debt a country has in relation to its economic output. an
increase in it indicates the difficulty of a country to pay its debt leading to economic instability.
Its significant reasons are deficit and low tax base, informal economy. According to the World
Bank, Pakistan's debt-to-GDP ratio was 87.2% in 2020. According to the State Bank of Pakistan,
as of December 2022, Pakistan's debt-to-GDP ratio had increased to 90.4%. which indicates a
heavy reliance on borrowing to fund government operations.

 A high debt-to-GDP ratio can lead to higher interest payments, reduced investor
confidence, increased risk of default, limited fiscal flexibility, and crowding out private
investment. It poses significant challenges for an economy, potentially leading to lower
economic growth and increased risk of crisis.
 a high level of external and domestic debt, which has limited the government's ability to
invest in critical areas such as education, healthcare, and infrastructure.

4. Balance of payments: The balance of payments refers to the difference between a country's
total payments to other countries (including imports, foreign debt payments, and other
expenses) and its total receipts from other countries (including exports, foreign investment, and
other income).

In January 2023, the current account deficit further decreased to USD 242 million, compared to
USD 2,467 million in the same period last year, due to an improvement in the trade balance.
 Pakistan's balance of payments constraint has been a persistent challenge for its economy, with
a significant current account deficit and low levels of exports and foreign investment. This has
led to a severe economic challenge. According to the recent report of the Ministry of Finance.

5. Energy crisis: Pakistan has been facing a severe energy crisis, which has led to frequent power
outages and hampered economic growth. In addition, the crisis has had a negative impact on
industrial productivity and competitiveness, with many businesses forced to rely on expensive
diesel generators to power their operations. According to the World Bank, the energy crisis has
led to an estimated 2% reduction in GDP growth per year The country has struggled to meet its
energy demands due to inadequate infrastructure, insufficient investment in the sector, and a
reliance on expensive imported fuel.

 According to the State Bank of Pakistan, circular debt in the energy sector stood at
around PKR 2.5 trillion (approximately $16 billion) in December 2020. This represents a
significant burden on the energy sector and the economy as a whole

6. Corruption and governance issue: According to Transparency International's 2021 Corruption

Perception Index, Pakistan ranks 124th out of 180 countries, indicating a high level of perceived
corruption in the country. Lack of efficient and well-organized governance system and institution
in practice. Incompetence, inefficiency and lethargic attitude of the leaders on top results in
corrupt and unethical practices down the line, which in turn, brings about a fall in the economic
growth. Lack of planning coupled with lack of consensus and coordination at the top
government functionaries and bureaucratic levels in respect of opportunities available results in
non-utilization of human and capital resources. Non-accountability of the corrupt and lack of
transparency is one of the biggest. Can we cope with our economic challenges with the same
governance structures? Probably not.

7. Unemployment: Pakistan's unemployment rate is high, particularly among young people. The
lack of job opportunities is a significant concern, and many young people are forced to seek
work abroad, contributing to a brain drain. Moreover, The lack of job opportunities has
contributed to social unrest and political instability.

 Okun's Law is an empirically observed relationship between unemployment and losses

in a country's production. It predicts that a 1% increase in unemployment will usually be
associated with a 2% drop in gross domestic product (GDP).
REASONS OF ECONOMIC INABILITY

1. Security challenges: Pakistan has faced significant security challenges, including terrorism and
sectarian violence, which have deterred foreign investment and damaged the country's image in
the international community.

 Pakistan's Ministry of Finance estimates the country has lost $123 billion in direct and
indirect costs due to terrorism.

Addressing these challenges is critical for creating a stable and secure environment for
economic growth.

2. Limited fiscal space: Pakistan has limited fiscal space, meaning that the government has limited
resources to invest in critical areas such as infrastructure, education, and healthcare. This has
made it difficult for the country to make the necessary investments to promote economic
growth.

3. Political instability: Pakistan has a history of political instability, with frequent changes in
government and disruptions to policy continuity, as a result, Pakistan's economy is teetering on
the brink of collapse. This has contributed to a lack of long-term planning and investment in the
economy, making it difficult to implement structural reforms

There is Uncertainty and Unpredictability due to Lack of Continuity. In the meanwhile, the
people of Pakistan suffer because of this lack of continuity. Not only foreign but also local
investors are discouraged, as with current practice prevalent in the country, every new
government abandons the inherited projects and promises entered into with investors by the
predecessors and starts afresh.

 1900 students sent by HEC I previous government got into a problem when new
government suspended the program.

4. Low levels of human capital and productivity: Pakistan has a relatively low level of human
capital, with high levels of illiteracy and low levels of education. Despite 60% of young
population county’s productivity rate is very low This has limited the country's ability to develop
a skilled workforce and to attract investment in high-value sectors.

 The investment climate in Pakistan is poor, with a lack of business-friendly environment

and lengthy government procedures. Cost of doing business is very high For instance,
obtaining a construction permit in Pakistan requires an average of nine procedures,
which cost approximately 9% of the total value of the intended construction project.
 Foreign investors as well as global companies may refer to Pakistan as a country having
potential, but when it comes to reliability, there are many more options available to
them

5. COVID-19 pandemic: Like many countries, Pakistan has been impacted by the COVID-19
pandemic, which has disrupted supply chains, reduced consumer demand, and affected
 economic activity. Addressing the impacts of the pandemic will be an important step towards
promoting economic growth and self-sufficiency.

6. Climate change and disasters:

7. Pork barrel politics:

WAY FORWARD:

1. Diversifying the economy: Pakistan is heavily dependent on a few sectors, such as agriculture
and textiles. To become self-sufficient, the country would need to diversify its economy and
develop new industries. This could involve investing in areas such as technology, renewable
energy, and high-value manufacturing.

2. Improving infrastructure: Improving infrastructure, such as transportation, energy, and

communication networks, is essential for promoting economic growth and development. Better
infrastructure would make it easier for businesses to operate efficiently and could attract more
investment to the country.

3. Promoting innovation and entrepreneurship: Encouraging innovation and entrepreneurship is

critical for developing new products, services, and industries. This could involve creating a
supportive ecosystem for startups, providing access to financing and training, and offering
incentives for innovation.

4. Addressing governance and corruption issues: Improving governance and reducing corruption is
important for creating a level playing field for businesses and attracting investment. This would
involve strengthening institutions, increasing transparency, and reducing bureaucratic hurdles.

While achieving self-sufficiency in the near term may be challenging, these steps could help to put
Pakistan on a path towards greater economic independence and prosperity in the long term.

TAX REFORMS:

Provision of incentives to filers: tax payers don’t see any direct benefit of paying taxes and therefore
remain uneasy at paying taxes. There is a need to provide incentives to tax payers in the form of
insurances or facilities. It would barely take 2-4% of tax amount

Relaxations for filers focusing non filers: while offering relaxations to tax payers it is necessary to take
un declared economy into documents.

Switch from cash base economy to cashless economy: Huge number of transactions are being
conducted in Pakistan through cash and it provides the avenue to the businesses to evade taxes.
Businesses succeed to hide sales tax collection from the consumers along with their revenues. This is
one of the reasons for having lower tax to Gross Domestic Product (GDP) ratio despite the levy of only
the General Sales Tax (GST) @ 18%.

Special procedure for tax collection from small retailers: illiterate ,cant afford an annual accountant
 SOME IMPORTANT POINTS FROM DIFFERENT ARTICLES:

We Consume More and Save Less.

Out of every hundred rupees of our national income, we consume 85 rupees and save only 15
rupees, which means that the amount of money which is available to invest for economic growth
and advancement is too little. Because to grow by 6%, you need at least 24-25% investment rate -
and if you want to rely on domestic savings, your saving rate should be 25%. India’s saving rate was
about the same, but last year they recorded 34% saving rates. China’s saving rate is 50%, so this is
the contrast as to why we are in serious difficulty because as a nation this is a problem which we
have to recognize. We have to at least double on savings rate otherwise we will remain dependent
on foreign sources.

Our Share in the World Trade is Shrinking.

WATER AND ENERGY CRISIS: link climate change to it.

Crisis of Governance and Implementation Weaknesses.

If we glance on policy documents of various governments on education, agriculture, health, trade policy
etc, and look at the same policy forty years ago and the problems, there is hardly any significant record
of implementation of those policies or plans over this period. We produce five years plans and all kinds
of medium term frameworks, 9 but it is the poor governance and implementation that are the weak
links in getting things done. Unless we strengthen civil services and bring about a merit based system of
recruitment, promotion, performance evaluation, compensation, disciplinary action, etc, we will not be
able to see any difference in the quality of governance. Orders are given by the higher ups but they are
not carried out; summaries are approved, but they remain buried in the files and therefore; whether it is
education, health, water supply, revenue or law and order, you can pin down the problem to the
governance issues. Unless we fix the governance issue, the economy is not going to take off at the speed
which is required

The future economic prospects of Pakistan look promising but their actual realization would depend
upon a number of critical factors such as benign global economy, successful integration of Pakistan into
the global economy, sound macroeconomic policies, a strong institutional and governance framework,
investment in infrastructure and human development and political stability. Under a constellation of
these favourable conditions, it should be possible to add 2 to 2.5 percentage points to the current trend
growth rate whereby per-capita income would double to US$2,600 by 2030. Concluded by Ishrat
Hussain in an article Pakistan’s Economy and Regional Challenges.

 Economic inequality is the unequal distribution of income and opportunity between

different groups in society. It is a concern in almost all countries around the world and
often people are trapped in poverty with little chance to climb up the social ladder. But,
being born into poverty does not automatically mean you stay poor. Education, at all
levels, enhancing skills, and training policies can be used alongside social assistance
programs to help people out of poverty and to reduce inequality. Several countries are
also now exploring whether a universal basic income could be the answer.

Pakistan Gross Savings Rate  3.8% in 2022

According to the Pakistan daily, the IMF had also projected that
the GDP growth rate would rebound in the next fiscal 2023-24
up to 4.4 per cent.
Pakistan is a country full of potential and opportunities so in order to exploit the prospects, we need to
be united and work towards major transformation and positive revolution.

Texlile industry 12.4 percent decline (2023)

Q: is it a good choice to invest in Pakistan.