Pakistan's Economic Overview

 Economical Overview:

Pakistan is facing significant economic difficulties that are a result of enduring structural weaknesses. Between 2001 and 2018, Pakistan made significant strides in reducing poverty as more than 47 million people were able to escape poverty thanks to the growth of off-farm employment opportunities and a rise in remittance inflow. However, despite the rapid decrease in poverty, socioeconomic conditions have not significantly improved, as evidenced by the poor and stagnant state of human capital outcomes, which include high rates of stunting (38%) and learning poverty (75%). In addition, strong economic growth frequently results in economic imbalances and frequent macroeconomic crises because it reflects a consumption-driven growth model with limited exports and investment that boost productivity. Real gross domestic product (GDP) per capita has therefore grown slowly over time, averaging only about 2.2 percent annually between 2000 and 22.




Due to its low foreign exchange reserves, weakening currency, and high inflation, Pakistan's economy is currently under significant strain. Economic growth in FY22 substantially exceeded potential due to high levels of public consumption, placing significant pressure on domestic prices, the external and fiscal sectors, the exchange rate, and foreign reserves. The devastating flooding in 2022, rising global commodity prices, tightening international financial conditions, and unpredictability in domestic politics all served to exacerbate these imbalances. Furthermore, the IMF-EFF programme was delayed by distorting policy measures, such as periods of unofficial exchange rate restrictions and import controls, which also helped to lower confidence, downgrade creditworthiness, increase yields and interest payments, and prevent access to global capital markets.

Policy tightening, the effects of the floods, import restrictions, high borrowing and fuel costs, low confidence, and protracted political and policy uncertainty have all contributed to a decline in economic activity. The devastating floods have decreased agricultural output and provided fewer opportunities for low-wage workers to find work, in addition to challenges obtaining high-quality fertilisers and animal feed. The activity of the industry and service sectors has also been impacted by declining foreign reserves, import restrictions, the effects of flooding, high fuel prices, policy uncertainty, and a slowdown in domestic and international demand. The floods have had a negative impact on health and education outcomes, particularly for rural areas, with the destruction of infrastructure and disrupted access to schools, medical facilities, and sanitation systems, potentially affecting long-term human capital accumulation.

In the medium term, economic growth is anticipated to slow and continue to be below potential. Real GDP growth is anticipated to decline significantly in FY23, to 0.4%, due to the effects of floods, corrective tighter fiscal policy, high inflation, high energy prices, and import controls. Due to the floods, agricultural output is anticipated to decrease for the first time in more than 20 years. With supply chain disruptions, diminished confidence, higher borrowing costs, higher fuel prices, and increased uncertainty, industry output is also anticipated to decline. The decrease in activity is anticipated to spread to the wholesale and transportation services industries, slowing the growth of the services output. The lower middle-income poverty rate is anticipated to rise to 37.2% in FY23 in the absence of increased social spending. Poor households are still susceptible to economic and climatic shocks because of their reliance on agriculture, small-scale manufacturing, and construction.

In order to maintain its progress towards macroeconomic stabilisation, the government faces a challenging policy challenge. The economic outlook is highly reliant on the prompt and complete implementation of policy reforms. To unlock much-needed external refinancing and fresh disbursements from regional partners, the macro-stabilization measures and structural reforms supported by the IMF-EFF programme must be put into effect. The creation, dissemination, and effective implementation of a bold reform strategy will be necessary to maintain stability and a sustained recovery.

 This strategy should include the following elements:

 i) adherence to a flexible market-determined exchange rate and sound fiscal-monetary policies.

 ii) increased domestic revenue mobilisation.

 iii) cutting back on and improving the quality of public expenditures.

 iv) structural reforms to improve investment, competitiveness, and productivity.

 v) immediate actions to resuscitate the energy sector.







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