CURRENT AFFAIRS/PAK AFFAIRS/ESSAY BATCH – (BY ENGR.

M HAMZA AQEEL) 03412250911

TOPIC # 01 ECONOMY OF PAKISTAN

Expected questions :

1. Pakistan’s economy ; challenges and remedies.

2. Economy of Pakistan has always remained in a turmoil. What are the
factors responsible for deteriorating economy? Suggest some measures
to uplift it.
3. Trace out the reasons behind the inflation in Pakistan. What are the
consequences of inflation? Discuss some remedies to heal the damage.

OUTLINE :

1. Introduction
2. What is economy? On what factors economy of a nation depends. Importance of economy
3. An overview of historical economic conditions of Pakistan.
4. Factors responsible for poor economic performance.
5. Consequences due to economic downturn.
6. Remedies to curb the menace of inflation/economic turmoil.
7. case study
8. conclusion

1) INTRODUCTION :

Pakistan has always remained in complex web of social, economic, and political issues.
Economy is considered as the backbone of any country. Pakistan’s backbone is
under tremendous pressures from inside and outside elements. There are a lot of
challenges present, yet a lot more can be done in order to uplift the economy.
2) What is economy?
 -Importance of economic development for a country:

Economic development, the process whereby simple, low-income national

economies are transformed into modern industrial economies. Although the term is
sometimes used as a synonym for economic growth, generally it is employed to
describe a change in a country’s economy involving qualitative as well as quantitative
improvements.

3) Historical overview of Pakistan’s economy

Since independence, the economy of Pakistan has always been in vicissitudes situations. If we
look at it from the economic perspective, the historical background of the country seems so
satisfying, as compared to the current situations. Even though during initial years of the
partition the country faced lot of hardships. But during Gen. Ayyub Khan’s era the country has
managed 5.82% average growth rate from 1958-1969. However, signing a major benchmark in
the history, this period was followed by a bad luck decade of Bhutto’s government and Gen.
Zia’s liberal government. The post Zia’s period has faced lot of political turmoil which resulted
the military dictate of Gen. Musharraf. Though the economy had shown some remarkable
trends in Gen. Musharraf’s period, but it did not work out for the shrinking economic situations
of Pakistan. An analysis of Paksitan’s economy is given below :

DECADE EXPORTS (%) IMPORTS (%)

1950’S 7.8 3.4
1960’S 5.7 7.2
1970’S 12.4 14.8
2000-2021 2.6 4.1

Comparision of ANUALGROWTH RATES OF GDP in (%) with India and Bangladesh

DECADE BANGLADESH INDIA PAKISTAN

1970’S 3.6 3.6 4.8
1980’S 3.9 5.4 6.5
 1990’S 4.6 5.4 4.7
2000’S 5.4 6.5 4.7
2010’S-2021 6.4 4.8 3.6

These facts and figures are clearly pointing out that after a shaky start Pakistan’s government has
tried to stabilize the economy but policies was always good on paper yet implementation has
always remained a far-fetched dream.

4. Factors responsible for poor economic conditions

INTERNAL PROBLEMS EXTERNAL PROBLEMS

POOR TAX MECHANISM CURRENT ACCOUNT DEFICIT
FRAGILE DOMESTIC INDUSTRY DEPLETION OF FOREIGN RESERVES
LOSS INCURRING SOE FISCAL DEFICIT
INFORMAL ECONOMY NATURAL HAZARDS/GLOBAL WARMING
CIRCULAR DEBT

EXTERNAL PROBLEMS :
1. CURRENT ACCOUNT DEFICIT :
When a country buys more and sells less.
Pakistan has (3-5 products)
Example: USA manufactures IPHONE (1500$ in an hour). PAKISTAN manufactures nothing.
It grows rice,cotton and other agricultural products which takes (4-6 months) and cost is low.
Problems : 1. NO R&D 2. Existing competitors 3. Unstable policies

CURRENT ACCOUNT DEFICIT IN 2023*

2. DEPLITION OF FOREIGN RESERVES

Expenditure (more) – revenues (less)
3. Fiscal Deficit

4. Fiscal deficit can be calculated by finding the difference between the total income and the total
expenditure done by the government. The total income of the government is calculated by including
taxes, non-debt capital receipts and other forms of revenue except borrowings.

Fiscal Deficit = Total expenditure by the government (revenue and capital expenditure) - Total income
of the government (loan recovery, revenue and non-revenue receipts)

5. FLOODS IN PAKISTAN : (Data will be shared in regular class)

INTERNAL PROBLEMS :
PAKISTAN’S ECONOMY IS A DEBT BASED ECONOMY

1. TAXATION : 24 CRORE PEOPLE TAX PAID BY 24 LAKH.

DIRECT TAX & INDIRECT TAX : Direct taxes are levied on individuals or entities directly by the
government. In contrast, Indirect taxes are those collected by an intermediary (e.g.
marketplaces, manufacturers, platform owners, vendors) from the end consumer.

2. FRAGILE DOMESTIC INDUSTRY :

-Urbanization
-less innovation
-no digitalization
-poor loan/banking system

The fragile domestic industry of Pakistan refers to the vulnerable state of various sectors within Pakistan's
economy that face challenges and difficulties in terms of competitiveness, growth, and sustainability. Several
factors contribute to the fragility of Pakistan's domestic industry, including:

1. Energy Crisis: Frequent energy shortages and power outages have hindered industrial production and led to
increased costs for businesses. This has limited the ability of industries to operate efficiently.
2. Infrastructure Deficits: Insufficient infrastructure, such as transportation networks and utilities, affects the
smooth functioning of industries and their ability to access markets.

3. Policy Instability: Inconsistent policies, changes in regulations, and lack of policy continuity have discouraged
long-term investment and planning within industries.

4. Lack of Innovation: Many industries struggle to innovate and adopt modern technologies, limiting their
competitiveness in the global market.

5. Security Concerns: Security issues and geopolitical instability have discouraged foreign investments and
hindered the growth of industries.

6. Taxation and Regulatory Challenges: Complex and burdensome taxation systems, along with regulatory
hurdles, pose challenges for businesses, particularly small and medium-sized enterprises.

7. Skill Shortages: A shortage of skilled labor and a gap between educational institutions and industry
requirements can impede growth.

8. Global Competition: Domestic industries often face tough competition from international markets, affecting
their ability to compete effectively.

9. Environmental Concerns: Industries that are resource-intensive or contribute to pollution face increasing
pressure to adopt sustainable practices.

10. Dependency on Agriculture: Pakistan's economy is heavily reliant on agriculture, and the lack of diversification
can make the economy vulnerable to fluctuations in agricultural output.

3. POOR PERFORMANCE OF SOE :

- PIA, STEEL MILL, WAPDA, RAILWAY etc. (all govt. institutions)

State-owned enterprises (SOEs) in Pakistan have faced longstanding challenges that have often led to poor
performance. Several factors contribute to this situation. Some of the key reasons for the poor performance of
state-owned enterprises in Pakistan include:

1. Political Interference: SOEs in Pakistan often suffer from political interference, where appointments of key
management positions are influenced by political considerations rather than merit. This can lead to
mismanagement, lack of accountability, and inefficiencies.

2. Lack of Autonomy: Many state-owned enterprises in Pakistan lack operational autonomy. Bureaucratic
processes and government regulations can slow down decision-making and hinder the ability to respond
quickly to market changes.

3. Corruption and Mismanagement: Corruption and mismanagement are significant issues in the performance
of SOEs. Embezzlement, kickbacks, and other forms of corruption can divert funds meant for investment or
improvements.

4. Lack of Investment: Insufficient investment in modernizing infrastructure, technology, and equipment can lead
to outdated operations and decreased competitiveness.

5. Inefficient Workforce: Hiring practices influenced by political factors and outdated labor practices can result in
overstaffing, inefficiencies, and resistance to change.
6. Financial Burden: Many SOEs in Pakistan operate with financial losses, which are often subsidized by the
government. This puts a strain on public finances and reduces the funds available for essential public services.

7. Lack of Accountability: The absence of transparent mechanisms to hold management accountable for their
decisions and performance can contribute to a culture of complacency and underperformance.

8. Political Patronage: SOEs are sometimes used to provide jobs and favors to political allies, resulting in a focus
on patronage rather than business performance.

4. Other Issues in Pakistan’s economy

a) No long term policy

b) Unstable politics
c) Undocumented economy
d) Federal province rifts
e) Terrorism
f) Corruption
g) Structural flaws
h) IMF (23 TIMES) as compared to IND/BANGLADESH

Pakistan has faced various economic challenges over the years. Some of the prominent issues in the economy
of Pakistan include:

1. Inflation: Pakistan has struggled with persistent inflation, which can erode the purchasing power of its citizens
and create economic instability.

2. Unemployment: High levels of unemployment, particularly among the youth, have been a concern. Limited job
opportunities and a growing labor force have contributed to this issue.

3. Fiscal Deficit: The country has often grappled with a significant fiscal deficit, where government expenditures
exceed its revenues. This can lead to increased borrowing and debt accumulation.

4. Trade Imbalance: Pakistan has faced trade imbalances, with imports exceeding exports. This puts pressure on
the country's foreign exchange reserves and can impact its overall economic stability.

5. Energy Crisis: The energy sector in Pakistan has faced challenges in terms of inadequate supply, leading to
frequent power outages and hindering industrial growth.

6. Political Instability: Political instability and policy inconsistency have affected investor confidence and
hindered economic development.

7. Corruption: Corruption has been a persistent issue, affecting various aspects of the economy, including public
spending and business operations.

8. Low Human Development Indicators: Pakistan struggles with low levels of education, healthcare, and overall
human development, which can hinder productivity and economic growth.
9. Informal Economy: A significant portion of Pakistan's economy operates in the informal sector, which can limit
government revenue collection and regulation.

10. Agricultural Challenges: Agriculture is a significant sector in Pakistan, but challenges such as water scarcity,
outdated farming practices, and lack of modern infrastructure have hampered its potential.

11. External Debt: Pakistan's external debt levels have been a concern, as high debt servicing obligations can
strain the government's finances.

12. Security Concerns: Security issues and conflicts in certain regions have impacted economic activities and
foreign investments.

13. Lack of Industrial Diversification: The economy is heavily reliant on a few sectors, such as agriculture and
textiles, which can make it vulnerable to external shocks

5. Consequences of inflation/economic turmoil in Pakistan

-Poverty
-illiteracy
-energy crisis
-crime rate increase
- political instability

The economic crisis can have various impacts on Pakistan. Some of the potential effects include:

1. Unemployment and Poverty: Economic crises can lead to job losses as businesses struggle or close down,
resulting in increased unemployment rates. This can also push more people into poverty as their incomes
decrease.

2. Inflation: Economic crises can cause inflation to rise, making everyday goods and services more expensive. This
can particularly affect low-income households, making it harder for them to afford basic necessities.

3. Exchange Rate Volatility: Economic crises can lead to fluctuations in the exchange rate, which can impact the
cost of imports and exports. A weakened exchange rate can make imports more expensive, leading to higher
costs for imported goods.

4. Government Budget Constraints: During economic crises, government revenues can decrease due to lower
economic activity and tax collections. This can limit the government's ability to fund public services and
infrastructure projects.

5. Foreign Investment and Aid: Economic crises might deter foreign investors, as they become more risk-averse.
Additionally, aid or loans from international organizations could be affected, impacting the country's ability to
access external funding.

6. Trade Balance: A decline in economic activity can lead to a decrease in exports, affecting the trade balance.
Reduced export revenues can strain the country's foreign exchange reserves.

7. Social Unrest: Economic hardships can lead to social and political unrest, as frustrated citizens may engage in
protests or demonstrations demanding better economic conditions.

8. Health and Education: Public health and education sectors can face budget cuts during economic crises,
impacting the quality of healthcare and education services available to the population.
9. Economic Growth: Economic crises can result in a contraction of the overall economy, leading to reduced
economic growth prospects in the short term.

10. Business Closures: Many businesses, particularly smaller ones, might struggle to stay afloat during economic
crises, leading to closures and further job losses

6. Suggestions to uplift economy:

-Long term policies
-Invest in Blue economy/Tourism sector
-CPEC
-check and balance
-R & D
-educated workforce
- reduction in defence budget

Uplifting Pakistan's economy is a complex and multi-faceted challenge that requires

coordinated efforts from the government, private sector, civil society, and citizens. Here are
some key strategies and areas of focus that could contribute to the economic upliftment of
Pakistan:

1. Economic Diversification:

Promote diversification by investing in non-traditional sectors such as technology, renewable

energy, and services.

Support industries with high growth potential, such as IT and software development, e-
commerce, and tourism.

2. Infrastructure Development:

Invest in energy generation to overcome the energy crisis and improve industrial productivity.

Upgrade transportation networks, including roads, railways, and ports, to facilitate trade and
connectivity.

3. Business-Friendly Environment:

Simplify regulations and streamline bureaucratic processes to make it easier to start and
operate businesses.

Ensure transparency and accountability to reduce corruption and enhance investor confidence.

4. Education and Skill Development:

Enhance the quality of education and vocational training to produce a skilled workforce that
meets the demands of modern industries.

Focus on science, technology, engineering, and mathematics (STEM) education to support

innovation and technology adoption.

5. Research and Innovation:

Promote research and development to drive innovation, product development, and

technological advancements.

Establish research centers, incubators, and technology parks to foster collaboration between
academia and industry.

6. Export-Oriented Growth:

Develop strategies to increase exports by supporting export-oriented industries and diversifying

export markets.

Provide incentives to exporters and remove barriers to trade.

7. Agriculture Modernization:

Invest in agricultural research, technology, and infrastructure to enhance productivity and

reduce post-harvest losses.

Promote value-added agriculture by supporting food processing and agribusiness industries.

8. Social Safety Nets:

Implement social safety net programs to address poverty and income inequality, enabling
citizens to actively participate in economic activities.

9. Investment in Human Capital:

Prioritize healthcare and education to improve the overall quality of life and productivity of the
workforce.

Focus on women's empowerment and gender equality to increase workforce participation.

10. Public-Private Partnerships (PPPs):

Collaborate with the private sector to develop and implement projects that contribute to
economic growth and infrastructure development.

11. Microfinance and Small Business Support:

Strengthen microfinance institutions to provide credit to small businesses and entrepreneurs in
underserved areas.

12. Corruption and Governance Reforms:

Implement anti-corruption measures and improve governance to create a transparent and

accountable economic environment.

13. Tax Reforms:

Rationalize and simplify the tax system to encourage compliance and stimulate economic
growth.

14. Foreign Investment and Trade:

Attract foreign direct investment (FDI) through investor-friendly policies and incentives.

Expand trade relationships and explore new markets for Pakistani products.

15. CPEC and Regional Connectivity:

Leverage the China-Pakistan Economic Corridor (CPEC) to enhance connectivity, trade, and
economic growth.

7. Case study of Bangladesh & Singapore

Singapore's transformation into the "Tiger of Asia" in terms of its economic prowess is
a remarkable example of effective governance, strategic planning, and bold reforms.
Over the decades, Singapore has achieved rapid economic growth and development
through a combination of innovative policies and a business-friendly environment. The
key to its success lies in its commitment to openness, trade, and innovation. Singapore
implemented a range of reforms that streamlined bureaucracy, reduced corruption, and
attracted foreign investments. The government focused on creating a world-class
infrastructure, including modern ports, efficient transportation networks, and state-of-
the-art communication systems. It also invested significantly in education and skill
development, ensuring a highly skilled and adaptable workforce.

The rise of Bangladesh's economy in recent years can be attributed to several factors that have
contributed to its growth and development. Some key reasons behind the economic progress of
Bangladesh include:
Garment Industry and Export Growth: The ready-made garment (RMG) industry has played a
pivotal role in Bangladesh's economic growth. The country is one of the world's largest exporters of
textiles and garments. The industry's low labor costs, combined with improved production capacity and
quality, have attracted international buyers and boosted export earnings.

Remittances: Remittances from Bangladeshi workers abroad, particularly from the Middle East and
North America, constitute a significant source of foreign exchange. These remittances have not only
contributed to individual households but have also had a positive impact on the overall economy,
supporting consumption and investment.

Microfinance and Financial Inclusion: Bangladesh's microfinance sector, pioneered by institutions

like Grameen Bank, has played a crucial role in poverty reduction and financial inclusion. Providing
access to credit and financial services to the rural poor has empowered small entrepreneurs and fueled
economic activities at the grassroots level.

Infrastructure Development: Investments in infrastructure, including transportation networks,

energy generation, and port facilities, have improved connectivity and reduced costs for businesses.
These improvements have supported industrial growth and trade.

Export Diversification: In addition to garments, Bangladesh has been diversifying its export base,
including sectors like pharmaceuticals, information technology services, and agro-processing. This
diversification has reduced dependency on a single sector and increased economic resilience.

Stable Macroeconomic Policies: Bangladesh has maintained a stable macroeconomic environment

with controlled inflation and prudent fiscal management. This stability has fostered investor confidence
and attracted both domestic and foreign investments.

Social Development and Human Capital: Improvements in healthcare, education, and women's
empowerment have contributed to a more productive and skilled workforce. A focus on human capital
development has positively impacted the economy.

Trade Agreements and Regional Integration: Participation in regional trade agreements, such as
the South Asian Free Trade Area (SAFTA) and the Bay of Bengal Initiative for Multi-Sectoral Technical
and Economic Cooperation (BIMSTEC), has expanded market access for Bangladeshi products.

Infrastructure for Export-Oriented Industries: Special economic zones (SEZs) and export
processing zones (EPZs) have been established to attract foreign investment and promote export-
oriented industries.

Political Stability: Relative political stability in recent years has provided a conducive environment for
economic growth and policy implementation.

8. Conclusion
TRACE OUT THE REASONS OF INFLATION IN PAKISTAN…… Next class !!!!!

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STATS & DATA (2023-2024 budget highlights)

 Economic growth target fixed at 3.5% for fiscal year 2023-24

 Inflation forecasted to average at 21%

 Tax-to-GDP ratio to stand at 8.7%

 Current account deficit to stand at $6 billion by end of fiscal year 2023-24

 Government has allocated Rs1.8 trillion for defence spending

 Rs1.1 trillion earmarked for subsidies

 Rs761 billion allocated for pension

 Government will spend Rs950 billion on account of Public Sector Development

Programme

 Rs22.7 billion earmarked for health sector

 Agriculture credit limit enhanced from Rs1,800 billion to Rs2,250 billion

 Solarisation of 50,000 agriculture tubewells through Rs30 billion

 Withdrawal of all duties and taxes on imported seeds, combined harvesters, dryers
and rice planters

 Rs10 billion earmarked for PM’s Youth Business and Agriculture Loans scheme

 Rs6 billion subsidy announced on imported urea

 Targeted subsidy announced on wheat flour, ghee, pulses and rice

 35% increase in salaries of government servants of grade 1-16 in the form of ad-hoc
relief

 30% increase in salaries of government servants of grade 17-22 in the form of ad-
hoc relief
 Tax free imports of software and hardware by IT and IT enabled services equal to
1% of their exports with a ceiling of $50,000

 No sales tax return by freelancers with exports of $2,000 per month

 Increase in Benazir Income Support Programme allocation from Rs400 billion to

Rs450 billion

 Upward revision in pensions and increase in minimum pension to Rs12,000

 Rs10 billion set aside for provisions of 100,000 laptops for students

 Exemption of custom duty on import of raw material for batteries, solar panels and
inverters

QUOTES RELATED TO ECONOMY

A strong economy begins with a strong,well educated workforce. (bill gates)

There can be economy only when there is efficiency ( Benjamin Disraeli)

Interesting relations :

1. British in East india company to IMF

& much more …..

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Book references and other things will be discussed in class