Pakistan's Economy: The Sinking Ship

If a ship sets off for sail a dozen times and sinks each time, the logical conclusion would be that the ship requires a fundamental redesign. Pakistan’s economy like the ship has crashed 13 times in the last 60 years, each time requiring an International Monetary Fund bailout. Currently, Pakistan is in the midst of another economic crisis but it wasn’t always so. During the 1980s, in per capita terms, Pakistan was richer than India, China and Bangladesh by 15, 38 and 46 percent. Average annual GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. The average annual growth fell to 4.6% in the 1990s and for the year 2018-19, Pakistan’s economic growth fell to 3.3 %, which is the lowest in its history. Asian Development Bank forecasts the growth rate too further decrease to 2.8% in 2020 which would be much lower than other south Asian countries including Afghanistan, Bangladesh, Nepal, Maldives, and Sri Lanka.

Pakistan is a country of around 200 million people with a population growth rate of nearly 3% per year and a  current GDP growth rate of 3.3% is facing the biggest economic crisis in its history and there are many factors that contribute to creating this crisis. The roots of this economic crisis date back to the time of the partition of the subcontinent. The unequal distribution of funds during partition paved a way for the country’s dependence on first external loans from the IMF in 1958. At present, the country faces a crisis of circular debt, exchange rate, international balance of payment and investment.

The Circular debt crisis, which is the non-payment of dues by the electric power purchaser to the electricity supplier like K-Electric, is a big strain on Pakistan’s economy. Due to an increasing population, the energy demands have increased tremendously and the state suppliers getting few or no payments further increases the debt crisis, which has already risen to Rs 807 billion. The Exchange rate is the value of one currency as compared to another. In recent months the Pakistani rupee has been devalued around 30% as compared to the US dollar which has created new trials and tribulations for the already crippling economy by increasing the loan payments and affecting the balance of payments which causes the inability of repaying debts thus adding fuel to the economic crisis. The International balance of payments is the record of all international trade and financial transactions made by a country’s residents. Over the past years, the country’s trade deficit has increased drastically thus the balance of payments has also faced major cutbacks.

The Foreign direct investment (FDI) has also declined due to security conditions in the post-9/11 era, whereas local investors are reluctant to invest mainly due to the reason of unfair accountability checks. Corruption and money laundering have been a paramount factor for Pakistan’s economic crisis. As per the reports of Dawn, Pakistan loses $10-15 billion a year due to money laundering which has already placed the country on the grey list by the international watchdog, Financial Action Task Force(FATF). Political instability and lack of pragmatic and unwavering monetary policies are also a monumental reason behind Pakistan’s longstanding economic crisis.

Much needs to be done to pull out Pakistan from the cluster of economic challenges that it is stuck in today to bring prosperity. The first and foremost step that needs to be done is to decrease imports and increase exports. For boosting the exports the government needs to help local businesses produce products that can compete in the international market. Furthermore, the government needs to attract foreign investment which requires the need to establish peace and stability in the country as well as in the region, thus the state has to have good relations with all its neighbours. The government also needs to develop and implement a proper taxation system. Pakistan also has a large tourist potential and the state can create wealth by improving the environment and infrastructure for tourism. Last but not the least there is a need for immense reforms and their implementation so that the people of Pakistan get out of this economic dilemma that they are in today.

Every nation that saw the dawn of prosperity went through hardships and struggles and Pakistan can also work its way out of the current tribulations by acting upon Quaid-e-Azam Muhammad Ali Jinnah’s advice that, “With faith, discipline and selfless devotion to duty, there is nothing worthwhile that you cannot achieve”.