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Economic Crisis of Pakistan Essay Outline.pdf

A Complete essay to Get extra marks in CSS PMS

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Adnan Nasir , Dr. Abid G. Chaudhry

The analysis of economic crisis indicates that there is a considerable shift of public resources from social sector to defense sector and security affairs. This shift has changed the development priorities and financial resources have been taken away from socio-economic sector. Supply bottlenecks including gas and power load shedding are considered as a major factor affecting private investment and economic growth. Terrorism has taken a high toll on Pakistan’s economy which leads to slow economic growth, low investment, high rate of inflation, and higher levels of fiscal deficits. Low economic growth and decline in private investment also leads to higher rate of unemployment, which further aggravated the economic situation of the country.

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This paper highlights the present scenario of economic situation in Pakistan. Some of the main factors behind economic turmoil and than addressing these economic problems .

MUHAMMAD ALI , Fariba Azizzadeh , Abdoulrahman Aljounaidi

From the day first 14 Aug 1947 to now Pakistan passed tough time throughout history, Lack of Economic resources and financial instability political turmoil leadership crisis bad governance and many other factors. All these elements put Pakistan on the brink of destruction. According to a cautious survey in 1987 normal people were earning $5.50 per day. The overall percentage was $0.20% earning. The economic progress of the country was $96.80%. This percentage fluctuates over time according to the economic and political conditions of Pakistan. In 2018 it changed to $77.60% and overall entire population earned $1.20%. However on the flip-side population according to the 2000 Census, Pakistan's population was 160 Million. In 2017 it increased the figure to 220 Million. Thus overall it can be analyzed economic sources were not enough to meet the country's requirements. Since April 2022 until now Pakistan's economic situation are going lower and declining day by day due to political instability, poor governance, sick administration and financial crisis.

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Sashi Sivramkrishna

While the mainstream framing of Pakistan’s crisis is a lack of fiscal prudence, what the country really suffers from is a resource curse, not in energy or minerals, but from its position in geopolitics.

Dr Arshad Ali

Naved Hamid

The purpose of this article is to examine the different possible paths the Pakistan People’s Party could take following its coming into power in December 1971. For this purpose the paper examines the economic and political forces that were operating in the country at that time, the main options open to it and the consequences and limitations of the path it eventually takes.

The Pakistan Development Review

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The post 9/11 scenario in Pakistan’s economy can readily be identified with a host of positive developments. Real GDP growth rates have averaged around 6 percent since 2002, stock market surges have broken all the previous records, there is much more dynamism in the banking industry, capital flows are pouring into the economy, foreign exchange reserves have swelled to record high levels, and poverty has witnessed a declining trend. However, what mars these celebrations since last year is the scepticism of some market commentators on the growing vulnerability of Pakistan’s economy to crisis.1 The main weakness, as widely pointed out, remains the sustainability of current account deficit along with rising fiscal imbalances. A review of empirical literature on the determinants of currency crisis introduces a host of macroeconomic fundamentals broadly based on the predictions of the seminal first- and second-generation models. Although the list of these determinants varies from study to...

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This paper will help you to know the history of economy of Pakistan as well as the root causes and remedies to overcome the challenges

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The present research paper aims to study on Pakistan economy and current big challenges to Pakistan economy. A stable economy of any country plays an important and vital role in any nation’s collective prosperity and development. In Pakistan some of the areas are economically backward and underdeveloped. The economy of Pakistan has been undergoing a stabilization phase since the last three years. The restoration of macroeconomic stability is and necessary to provide the platform for generating growth, jobs, and improving the quality of life of the people.

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An Analysis of Pakistan’s Economy in 2023

Pakistan’s Economy in 2023: Analyzing Its Challenges and Prospects

Pakistan’s economic situation in 2023 is marked by both challenges and opportunities, according to an Analysis of Pakistan’s Economy 2023. While many have suffered through difficult times economically recently, signs of growth and stability are emerging across the board.

Pakistan Is Facing 10 Economic Challenges

Pakistan’s rapid population growth – estimated at 2.2% annually – has placed additional strain on resources within the country. Leading to unemployment, poverty and inequality issues.

Pakistan suffers from inadequate infrastructure that is unable to keep pace with the growing needs of its rapidly increasing population. Hampering economic development and making it harder for businesses to compete against international rivals.

Low Tax Revenues: Pakistan suffers from an inadequate tax-to-GDP ratio. Meaning the government lacks enough revenue to finance public services and stimulate economic activity.

Deteriorating Public Finances:

Pakistan’s public finances have seen significant deterioration over the years, with budget deficit and public debt increasing significantly – exacerbating economic difficulties further.

An Ineffective Banking System and Economy:

Pakistan’s banking system is ineffective and cannot meet the needs of its population. Thus impeding economic development as businesses struggle to access funds necessary for growth.

Weak Regulatory Environment:

Pakistan suffers from an inadequate regulatory environment , which hinders economic development. Corruption and cronyism have proliferated throughout society as a result, further undermining progress toward economic advancement.

Lack of Investment in Economy:

Pakistan has not been successful at attracting sufficient foreign direct investment (FDI). An essential ingredient of economic development as it provides capital, technology, and access to new markets.

Human Capital Inadequacy:

Pakistan lacks an adequate pool of educated workers, which has limited its economic growth potential.

Poor Education:

Pakistan suffers from an inadequate educational system that has inhibited its citizens’ development of human capital and made them less competitive in global economies.

Pakistan is facing numerous security concerns that have prevented economic development, including terrorist attacks, political instability and regional tensions.

The current account deficit

Pakistan’s economy faces several serious obstacles. One being its current account deficit which has steadily been widening for several years now. This trend can be partly attributed to a large trade deficit and declining exports that has reduced foreign exchange reserves. Inflation also remains an ongoing concern as rising prices erode consumers’ purchasing power.

Pakistan’s economy has experienced substantial improvements.

Pakistan has experienced some positive economic developments despite these obstacles. Pakistan has made significant strides toward stabilizing its fiscal situation by taking measures to reduce budget deficit. And boost revenue collection, and by making efforts to attract foreign investment to spur economic growth.

Enhancing Infrastructure Development in Pakistan.

Recent years, Pakistan has also focused on strengthening its infrastructure, with particular attention being given to improving transportation and energy systems. Such investments should ultimately pay dividends by increasing productivity while simultaneously decreasing business costs in Pakistan.

Pakistan’s growing technology sector, which is driving innovation and increasing competitiveness. Pakistan boasts a vibrant startup ecosystem featuring many young entrepreneurs creating products and services which they hope can be exported abroad.

Even with these successes, however, the country still faces significant obstacles. Most notably, more must be done by government to address poverty and inequality. Two persistent issues in many parts of the country. Furthermore, improvements need to be made in business climate and make it easier for entrepreneurs to launch and expand their companies.

While Pakistan’s economic situation in 2023 presents both challenges and opportunities, there is reason for optimism. Recent progress made has resulted in some success; with continued efforts being put in to tackle its financial difficulties. It should be well positioned for building a more secure future.

Are IMF debt traps the real danger for Pakistan’s economy in 2023?

International Monetary Fund (IMF) loans have long been seen as being an economic debt trap for certain nations, such as Pakistan. Critics allege that IMF loan conditions can lead to an endless cycle of debt. And austerity measures that damage both economy and people in these nations.

Proponents of IMF programs maintain that these loans provide essential funding for countries facing economic difficulty. and that the conditions attached to these loans are essential in helping restore economic equilibrium and foster sustainable development.

Pakistan has received IMF assistance on multiple occasions in the past, though some of their conditions can be controversial. For example, Pakistan was required to implement austerity measures such as cutting spending and raising taxes that may prove challenging when facing economic instability.

Experts contend that Pakistan has benefitted greatly from IMF assistance in terms of meeting its key economic challenges, such as reducing fiscal deficit and stabilizing foreign exchange reserves. Furthermore, technical assistance was given by IMF which has helped strengthen Pakistan’s policies and institutions.

The International Monetary Fund is often seen as a debt trap for Pakistan’s economy. Though various experts hold differing viewpoints on the matter. While IMF programs can present challenges that require creative solutions and may hinder sustainable growth and stability in some instances. They can also be invaluable support in times of difficulty and provide invaluable assistance when times get rough.

Why experts consider IMF a Debt Trap?

Experts describe the International Monetary Fund as a debt trap for various reasons, including:

Conditions can be stringent:

International Monetary Fund loans come with stringent conditions that may include austerity measures and structural reforms. That can be difficult for countries to implement and can have far-reaching economic and social ramifications.

Cycle of Debt: IMF loans often carry with them strict conditions that force countries into an endless cycle of debt repayment; the country often taking on additional loans just to service previous ones. This burden of repayment is difficult to escape.

Harmful impacts on economy:

IMF-mandated austerity measures such as cutting spending and raising taxes can damage both a country’s economy and its citizens, including reduced consumer spending and economic growth.

Long-term impact on economy:

IMF loans may have significant long-term repercussions for an economy and its citizens. For instance, cutting spending on social programs may worsen poverty and inequality, while decreasing public sector size could have adverse effects on job creation and economic development.

Unwanted focus on development:

Critics contend that the IMF’s emphasis on macroeconomic stability and fiscal discipline can come at the expense of development and poverty reduction efforts that are vital components of long-term growth and stability.

Experts often refer to the IMF as a debt trap due to its stringent loan conditions and subsequent debt cycle, harmful effects on economies and citizens, long-term consequences, and lack of focus on development.

Will Pakistan be able to increase economic growth over the coming years?

Forecasting Pakistan’s economy can be difficult, but certain factors could have an effect on its ability to expand in coming years.

Political Stability: An attractive political environment is essential to attracting investment and supporting economic expansion. If Pakistan can maintain stability through reforms that foster an enabling business environment, its economy could see substantial improvements.

Reforms: Over the past several years, Pakistan’s government has implemented numerous reforms designed to enhance tax collection, reduce budget deficits and stabilize currency exchange rates. If these reforms continue along with measures designed to spur economic development, Pakistan could improve its economic outlook significantly.

Investment: Pakistan relies heavily on foreign investment to bolster its economy. If the government can create an environment conducive to investors, attracting sufficient funds could drive economic development forward.

Export Growth: Pakistan relies heavily on exports as an engine of economic expansion; thus increasing exports will be vital if it wants to achieve sustained economic development. If the government can improve competitiveness of exports and thus boost growth and the economy simultaneously.

Infrastructure Development: Infrastructure expansion.

Investment in infrastructure such as transportation and energy systems can reduce business costs while simultaneously increasing productivity. If governments continue investing in this area, economic growth could increase significantly and open new doors for business and industry.

Conclusion In summation, Pakistan’s economic success will depend on various factors including political stability, reforms, investment decisions, export growth and infrastructure development. If the government can overcome any hurdles to sustainable economic development and create an ideal environment for sustained economic development then Pakistan may achieve sustained economic stability and growth in coming years.

Conclusion Pakistan’s economic situation in 2023 was determined by a combination of factors, including government reforms, investment decisions, export growth and infrastructure development. While political instability and austerity measures present challenges to economic progress, progress was also made with tax collection and decreasing budget deficits.

International Monetary Fund (IMF) loans have long been considered controversial in Pakistan due to their strict conditions, which can create a debt trap. Critics contend that IMF’s focus on macroeconomic stability and fiscal discipline may come at the cost of development efforts and poverty alleviation initiatives.

Pakistan’s ability to successfully diversify and strengthen its economy over the coming years will depend on several key elements, including political stability, reforms, investment decisions, export growth and infrastructure development. If the government can maintain stability while creating an environment favorable to business and investment activity then sustained economic growth may be possible – yet with so many challenges still standing in its way it may take considerable effort and patience in order to realize lasting economic success for Pakistan.

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Essay Outline: Economic Challenges Faced by Pakistan

Table of Contents

It is an open secret that writing standard English and grammatical accuracy play a vital role in success in essay writing for CSS Exam. You should know the art of literary and scholarly writing. It needs a long discussion to expatiate about improving written English but let me give you some rudimentary tips. A basic attribute which is to learn idiomatic usage in writing an essay should be developed. For earning grammatical accuracy in your writing, study English grammar thoroughly (not cursorily) to learn the correct usage of grammatical units i.e. verbs, adverbs, adjective, coordination, subordination, subject-verb agreement, phrasal verbs etc.

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1. Introduction:

2. Brief History about economy of Pakistan:

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3. Challenges faced by Pakistan:

• We Consume More and Save Less
• We Import More and Export Less.
• Government spends more than it earns as Revenues
• Low Tax to GDP ratio
• Devaluation of money
• Trade deficit and balance of payment issue.
• Our Share in the World Trade is Shrinking
• Poor health and educational facilities
• Political instability
• Immature media
• External debt, caught in foreign cloches.
• Mismanagement and underutilization of natural resources
• Energy crisis
• Incompetent judiciary
• Low capital formation
• Population pressure
• Agrarian economy
• Inconsistent policies
• Untrained Labor force

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4. Causes of economic turmoil:

• Mismanagement
• Wealth Concentration
• Lack of good governance
• External debt
• Public issues unresolved.
• Poor law and order situation.
• Trade deficit

5. Remedial measures:

• Exploration of new markets
• Industrialization
• Tight monetary policy
• Investor’s friendly policies
• Regional peace
• Improved law and order
• Good governance:

6. Conclusion:

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An Economic Crisis in Pakistan Again: What’s Different This Time?

Photo: AAMIR QURESHI/AFP/Getty Images

Critical Questions by Daniel F. Runde and Ambassador Richard Olson

Published October 31, 2018

Pakistan’s newly-elected government is already dealing with a balance of payments crisis, which has been a consistent theme for the nation’s newly elected officials. Pakistan’s structural problems are homegrown, but what is different this time around is an added component of Chinese debt. Pakistan is the largest Belt and Road (BRI) partner adding another creditor to its already complicated economic situation.

Pakistan’s system is ill-equipped to make changes which would avoid future excessive debt. A bailout from the International Monetary Fund (IMF) is probably the safest bet for the country although it is unclear whether the United States will support the program. How Pakistan decides to handle its debt crisis could provide insight into how the U.S., IMF, and China will resolve development issues in the future. Beijing is a relatively new player in the development finance world so much is to be learned from how it deals with Pakistan and how it could possibly maneuver in other developing countries in Asia, Africa, and Latin America.

Q1: What is Pakistan’s current financial and economic situation?

A1: Pakistan held its most recent elections in July 2018. The Pakistan Tehreek-e-Insaf party gained over 100 seats in the parliament, and its founder Imran Khan , a famous cricket team captain, was installed as prime minister. Prime Minister Khan has inherited a balance of payments crisis , the third one in the last 10 years. By the end of June 2018, Pakistan had a current account deficit of $18 billion , nearly a 45 percent increase from an account deficit of $12.4 billion in 2017. Exorbitant imports (including those related to the China-Pakistan Economic Corridor (CPEC)) and less-than-projected inflows (export revenues and remittances) have led to a current account deficit widening, with foreign currency reserves levels covering less than two months of imports—pushing Pakistan towards a difficult economic situation .

Part of Pakistan’s financial crisis stems from the fact that 2018 was a poor year for emerging markets. Global monetary tightening, increased oil prices, and reduced investor confidence have negatively impacted the country’s already precarious economic situation. But the country’s deep structural problems and weak macroeconomic policies have further exposed the economy to an array of debt vulnerabilities.

Pakistan has had an overvalued exchange rate, low interest rates, and subdued inflation over the last few years. This loose monetary policy has led to high domestic demand, with two-thirds of Pakistan’s economic growth stemming from domestic consumption. An overvalued exchange rate has led to a very high level of imports and low level of exports. Pakistan’s high fiscal deficit was accelerated even further in 2017 and 2018 because elections have historically caused spending to rise (both of the most recent fiscal crises followed elections). Perhaps the greatest financial issues facing Pakistan are its pervasive tax evasion and chronically low level of domestic resource mobilization. Taxes in Pakistan comprise less than 10 percent of GDP , a far cry from the 35 percent of countries that are part of the Organisation for Economic Co-operation and Development (OECD). Pakistan also suffers from impediments in the energy sector through frequent and widespread power outages that hurt its competitiveness.

In Western media, Chinese investment is often cited as the main driver of Pakistan’s debt crisis. This is somewhat true as China’s BRI makes Pakistan a key partner through the shared CPEC. The CPEC is a $60 billion program of infrastructure, energy and communication projects that aims to improve connectivity in the region. CPEC infrastructure costs have certainly placed a greater debt burden on Pakistan, but the current structural problems are homegrown; the root cause of the energy shortages is now less a matter of power generation, and more of fiscal mismanagement of the power sector .

Q2: What are Pakistan’s options?

A2: Pakistan appears to be in perpetual crisis-mode, and for too long the Pakistani government has been overly reliant on U.S. bilateral assistance. While it may not be the first choice of the Pakistani government, an IMF bailout is the most likely outcome of this financial crisis because it is probably the only path for Pakistan to regain its macroeconomic stability. Any “bailout” from a bilateral donor (meaning China or Pakistan’s Gulf State friends, including Saudi Arabia which has recently provided Pakistan $3 billion for a period of one year as balance-of-payment support) will not get at the root issues that Pakistan faces—its loose macroeconomic, fiscal, and monetary policies. Pakistan needs to get its house in order and remedy many of its domestic economic issues. 18 out of Pakistan’s 21 IMF programs over the last 60 years have not been completed despite obtaining over $30 billion in financial support across those programs. Just like today’s current financial crisis, Pakistan’s last two IMF packages (in 2008 and 2013) were also negotiated by incoming governments.

Q3: Would the U.S. support a new IMF Pakistan program?

A3: The current U.S. administration and Congress would not be supportive of additional bilateral funding to Pakistan—meaning money coming directly from the United States. Since 2001, Pakistan has been the beneficiary of the U.S. Coalition Support Fund (CSF), which reimburses allies for costs incurred by war on terrorism. The CSF is used to reimburse Pakistan for U.S. military use of its network infrastructure (e.g., ports, railways, roads, airspace) so that the United States can prosecute the war in neighboring Afghanistan, as well as certain Pakistani military counter-terrorism operations. The CSF for Pakistan has been as high as $1.2 billion per year, and, in recent years, $900 million per year. With nearly $1 billion in CSF distributed every year, along with $335 million in humanitarian assistance, it will be difficult to convince Congress to appropriate more funds for a Pakistan bailout yet. However, due to inaction on the part of Pakistan to expel or arrest Taliban insurgents operating from Pakistani territory, the United States has recently cut another $300 million from the CSF, bringing the total to $850 million in U.S. assistance withheld from Pakistan this year. In fact, all security assistance to Pakistan, whether it is international military education and training, foreign military financing, or the CSF, has been suspended for this year according to one State Department official.

An IMF program for Pakistan faces resistance from some members of Congress. A group of 16 senators has already signed a letter to President Trump that outlines their opposition to bailing out Pakistan because the IMF package would, in effect, be bailing out Chinese banks.

The Trump administration has also taken a hardline stance towards assisting Pakistan with its financial crisis. Secretary of State Pompeo stated this past July that he would not support an IMF bailout that went towards paying off Chinese loans. In September, Secretary Pompeo visited Pakistan, and there were indications that the United States would not block an IMF program. If an IMF program is enacted, there is no doubt that it would have stronger conditionality and a greater insistence on full transparency of Pakistan’s debt obligations.

Q4: Would an IMF package be a bailout of the Chinese?

A4: The terms of Pakistan’s loans with China are currently unclear and multiple news outlets have reported that Pakistan has refused to share CPEC information with the IMF. However, it is not unreasonable to presume that the terms in those contracts would be more demanding than terms typically asked by the IMF. Unless the terms between Pakistan and China and its state-owned enterprises (SOEs) are disclosed and made clear to the IMF, then it is unwise for the IMF to proceed with a bailout package.

The IMF’s focus is not in projecting power and influence; rather it seeks to help struggling nations get back on their feet. The same cannot be said for China. China appears to be most interested in spreading its influence and gaining valuable assets for its military and expanding economy, while at the same time exporting its surplus capacity for infrastructure building. In its annual report to Congress, the Department of Defense reiterated this concern, “countries participating in BRI [such as Pakistan] could develop economic dependence on Chinese capital, which China could leverage to achieve its interests.”

Of Pakistan’s nearly $30 billion trade deficit, 30 percent is directly attributable to China . If China were concerned about the economic crisis in Pakistan, it would make immediate concessions which Pakistan Finance Minister Asad Umar says China is working on . To help with the crisis, China could readjust its trade surplus with Pakistan in different ways. For example, China could buy Pakistani cement and other purchases in the short term to illustrate that they are aware of and swiftly responding to the economic turmoil in Pakistan. Other nations have struggled with debt obligations to China. For instance, in July 2017, Sri Lanka signed over a 99-year lease for Hambantota Port to a Chinese SOE because of Sri Lanka’s inability to pay for BRI costs. Malaysia took a different path and decided to cancel major infrastructure projects with China in August 2018 due to worries that they would increase its debt burden .

Q5: What are the consequences if there is no IMF package?

A5: It is likely that China will provide even more assistance to broaden Pakistan’s dependency. Chinese banks and SOEs have already invested heavily into Pakistan, so much so that state bank loans have not been fully disclosed to the global community. In fact, Pakistan’s Status Report for July 2017 through June 2018 shows that Chinese commercial banks hold 53 percent of Pakistan’s outstanding commercial debt. However, that percentage may be even higher than the report depicts. While China and Pakistan have agreed to make all CPEC projects readily available to the public, the information is scattered and often left blank on essential financial reports (see July-June 2017 document ), and so it is difficult to obtain a full sense of the degree of Pakistan’s indebtedness to China. Again, much of the loan information provided by the Pakistani government, especially concerning China, is not entirely transparent.

If China chooses to follow through and become the “point person” for an assistance package, the pressure will be taken off the IMF. But, if the United States does not support an IMF package, it will forego major geopolitical potential in the region to its main competitor, China.

Pakistan represents a litmus test of all future cases in which the IMF, United States, China, and any emerging market country are all involved. Depending on how Beijing chooses to navigate Pakistan’s financial crisis, China may soon find itself responsible for rectifying the debt burdens of Zambia and many other BRI countries.

Q6: What are U.S. geopolitical “equities” in Pakistan?

A6:  The United States is invested in Pakistan because of its significant geopolitical importance.

• Pakistan is an important component of the balance of power in South Asia. Both India and Pakistan have nuclear weapons capabilities. Moreover, China, India, and Pakistan have been in dispute over the Kashmir region since 1947. Regional stability is in the interest of the United States.
• Despite its ambiguous stance on militant groups, Pakistan is ostensibly an ally of the United States because of its proximity to Afghanistan. Since the War on Terror began in 2001, Pakistan has been an active partner in the elimination of core al Qaeda within Pakistan and has facilitated aspects of the U.S. military campaign in Afghanistan.
• The United States now seeks a negotiated settlement to the conflict in Afghanistan. To accomplish this, perhaps the United States will come to Pakistan with a simple offer: “deliver the Taliban, and we will give you the IMF.”
• Whereas previous administrations may have tried to “play nice” with Pakistan, under the Trump administration, there is a chance that the U.S. government will push the IMF to adopt stricter terms for a Pakistan bailout, citing the Pakistani government’s failures of the last two programs.
• Other than strategic military importance, one of the most important national security challenges to the United States is Pakistan’s demographic trends. Currently, over 64 percent of Pakistanis are under the age of 30—the largest percentage of youth in the country’s history. Over the next 30 years, Pakistan’s population will increase by over 100 million, jumping from 190 million to 300 million by 2050 . The spike in youth population presents an opportunity for the U.S. government and private sector to increase investment in Pakistan. Pakistan’s economy must generate 1 million jobs annually for the next three decades and GDP growth rates must equal 7 percent or more per year to keep up with the population boom. Were Pakistan’s economy to collapse, the world would see the first instance of a failed state with a substantial arsenal of nuclear weapons.
• An economically healthy Pakistan could be a large market for U.S. goods and services. If the U.S.-Pakistan relationship is strained as a result of this financial crisis, it will not only harm the United States militarily but will also harm U.S. businesses and Pakistani consumers.

Q7: Should the U.S. support an IMF package to Pakistan?

A7: Given the geostrategic importance of Pakistan for the United States, we should support a package but with stronger conditionality than in 2013 along with full transparency and disclosure of its debt obligations.

Daniel F. Runde is senior vice president, director of the Project on Prosperity and Development, and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Richard Olson is a non-resident senior associate at CSIS. He is the former U.S. ambassador to the United Arab Emirates and Pakistan; most recently he served as the U.S. special representative for Afghanistan and Pakistan during the Obama administration. Special thanks to CSIS Project on Prosperity and Development program coordinator Owen Murphy and intern Austin Lucas for their contributions to this analysis.

Critical Questions   is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2018 by the Center for Strategic and International Studies. All rights reserved.

Daniel F. Runde

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Implications of Economic Crisis In Pakistan

• Areeba Fatima
• January 14, 2024
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CSS & PMS Solved Essays | Implications of Economic Crisis In Pakistan

Areeba Fatima, a Sir Syed Kazim Ali student, has attempted the CSS & PMS essay “Implications of Economic Crisis In Pakistan” on the given pattern, which Sir  Syed Kazim Ali  teaches his students. Sir Syed Kazim Ali has been Pakistan’s top English writing and CSS, PMS essay and precis coach with the highest success rate of his students. The essay is uploaded to help other competitive aspirants learn and practice essay writing techniques and patterns to qualify for the essay paper.

1-Introduction

If the economic crisis in Pakistan is not dealt sagaciously, the country might experience crucial implications, including the collapse of the economy, monetary collapse, and security threats.

2-Economic profile of Pakistan

3-Current situation of economic crisis in Pakistan

• Evidence:  According to the Centre for the Study of Education in an International Context (CEIC), “The Gross Domestic Product (GDP) in Pakistan expanded 1.7 % in June 2023, following a growth of 4.7 % in the previous year.”

4-Implications of economic crisis in Pakistan

• Evidence:  The recent Sri Lankan collapse is the dire consequence of the economic crisis.
• Evidence:  Zimbabwe’s monetary collapse happened due to the government’s poor monetary policies, the glaring example
• Evidence:  Like Somalia, Afghanistan, and Chile, Pakistan also facing a food crisis and insecurity
• Evidence:  The American Civil War of 1861-1865, the dire consequence of economic disparity
• Evidence:  The fate of Pakistan can be the same as Sri Lanka, which has to cut its military spending.  
• Evidence:  Syria and Afghanistan, the example of failed states, become unable to reduce economic disparity
• Evidence:  Pakistan, faced such grim repercussions in the form of the downfall of Ayyub owing to his incompetent economic policies

5-Remedies to counter the implications menace of economic crisis

• ✓To re-orient the economy from imports to exports by introducing long-term financing policies
•  ✓To promote industrial growth by setting up small-scale industries
• ✓To increase public participation by strengthening civil society

6-Critical Analysis

7- Conclusion

It is indisputable that a solid economic footing is a fundamental prerequisite for a country’s development and prosperity. Unfortunately, Pakistan’s economic downfall has not only tarnished its image but also pushed it to the brink of bankruptcy. As stated by Derek Chen, the Senior Economist of the World Bank, the decline in exports as a share of GDP has severe implications for the country’s foreign exchange, jobs, and economic growth. It is high time that Pakistan confronts the core challenges necessary to compete in global markets. Failure to do so could have dire consequences, including the collapse of the economy, which would severely impact the country’s social, economic, and political fabric. Monetary collapse, security threats, and regime overthrow are just a few of the potential outcomes if the issue remains unaddressed. However, there is still hope. As Atal Bihari Vajpayee aptly remarks, empowering the individual means empowering the nation, and empowerment is the best server of rapid economic growth with rapid social change. It is time for Pakistan to take the necessary steps towards economic revival and empower its people to achieve sustainable growth. The country can fuel its economic development by promoting industrial growth, re-orienting the economy towards exports, and increasing public participation.

Understanding the country’s economic profile, Pakistan’s economy is classified as a developing economy. It is a mixed economic system with free-market activity and government intervention. Further,  Pakistan’s economy is the 24th largest in gross domestic product (GDP) based on Purchasing Power Parity (PPP) and the 46th largest in nominal GDP.   This Gross Domestic Product is estimated to have contracted by 0.6 per cent in Fiscal Year 2023 after two consecutive years of stellar growth.  Besides, Pakistan’s economy is primarily based on agriculture, textiles, and services, with the agricultural sector contributing around 22.25 per cent to Pakistan’s GDP, 19.82 per cent coming from the industry. Above all, over half of the economy’s contribution comes from the services sector, making it a stable nation. 

At present, Pakistan is at a critical stage as the country is facing the worst form of economic crisis. It has pushed the country to the brink of bankruptcy and collapse. In addition, Covid-19 has also caused much damage to the already staggering economy. Furthermore, the recent destructive floods in the country have proved the last nail in the coffin, wiping out crops of hundreds of acres of land, and, in turn, increasing the crops’ import. It casts dire consequences on the country’s people’s financial development and social life.  According to the Centre for the Study of Education in an International Context (CEIC), “The Gross Domestic Product (GDP) in Pakistan expanded 1.7 % in June 2023, following a growth of 4.7 % in the previous year.”  To worsen the situation, foreign investors have declined to invest in the country due to prevailing political instability. Pakistan is still looking towards the IMF for its deals and development programs to avoid the worst circumstances.

If the economic crisis remains corrupted, it can curb Pakistan’s social, political, and economic growth. First, the economic crisis can also lead towards bankruptcy. The state’s inability to pay its debt, a devalued currency, and hyperinflation with the grim shortage of basic necessities: food, medicine, and fuel, can shove the country onto the verge of bankruptcy. Many countries in the world have faced such terrible repercussions of financial crisis . To elaborate, the recent collapse of the Sri Lankan economy 2019-2023 is the ruinous repercussion of the economic crisis. Years of mismanagement toppled by the budget and current account deficits, a devalued currency, a substantial sovereign debt, limited foreign reserves, and the sparked months of public protests jolted the already fragile Sri Lankan economy, making it to declare bankruptcy.  This politico-economic collapse is a wake-up call for Pakistan’s government to pay its whopping circular debt and re-structure its economic policies to avoid grave consequences as the situation, if it remains unrectified, can gush it into debt default.  

Moreover, the economic crisis has the potential to escalate into monetary collapse. The root of monetary collapse stems from the lack of faith in the currency’s stability to serve as an effective medium of change. The economic stagnation, price volatility, prolonged periods of hyperinflation, and distrust of government monetary policy and authority exacerbate the situation. History has seen and faced the grim implications of the economic crisis in the form of the Mexican currency collapse, the Russian financial crisis, and Zimbabwe’s monetary collapse.  In particular, Zimbabwe’s monetary collapse has happened due to institutional corruption,   poor economic policy strategies, and a lack of confidence in the government and currency. Moreover, to recover the falling currency, the Reserve Bank of Zimbabwe started printing money, which hyped the inflation rate in the country, increasing monetary uncertainty.  This shows that Pakistan cannot control the monetary collapse spiral if the fiscal policy tends toward increased inflation and the financial crisis remains unchecked for long enough. 

Furthermore, the failure to curb economic crisis could also result in prolonged droughts and food crises. The devastating combination of natural calamities, soaring food prices, and economic shocks can potentially cause an unprecedented food crisis. Many countries around the globe have faced the distressing aftermath of the food crisis.  The food insecurity of Somalia, Afghanistan, Chile, and the Democratic Republic of Congo are glaring examples.   In other words, more than 6 million people are expected to face emergency levels of hunger this year, including 300,000 people facing life-threatening hunger in Somalia. The country is experiencing its longest drought in over 40 years. The concerning situation is fueled by a protracted economic crisis that ranks Somalia last in the 2021 Global Hunger Index. And the country ranks 116th out of 116 countries, pushing it into one of the most complex humanitarian crises in the world.  Such a grim situation could be Pakistan’s fate if the economic crisis continues to accentuate. 

Another implication of economic crisis can manifest in civil war, the war between the factions within the state trying to interfere in the state’s economic and political affairs. For example, situations like economic inequality, shattering public confidence in the government’s institutions, and feelings of economic alienation can escalate into civil unrest in the form of strikes, protest marches, demonstrations, and riots in Pakistan. Many countries in the world have faced the dire consequences of economic crisis.  To illustrate, the outbreak of the bloodiest conflict in the history of America is the repercussion of economic disparity, resulting in the Civil War of 1861-1865 between the Southern slave economy and the Northern economic leviathan.  This was the grave consequence of the economic clash between the parts of America. Such an outrageous situation could be Pakistan’s fate if the economic crisis remains unresolved.

Moreover, if the economic crisis remains unresolved, it can also harm the state’s national security. Owing to the financial crisis, the state can become unable to pay for the weaponry to defend its region and space, which can deter its integrity. There are many developing and underdeveloped countries in the world that are facing the grim ramifications of the economic crisis . To explain, the bankruptcy of Sri Lanka has caused it to cut military strength. Amid the ongoing economic turmoil crippled by the shortage of foreign exchange reserves, the country was unable to pay for fuel, food, and other necessities, which, in turn, made it slash the military by reducing its strength.  Therefore, the worst economic situation can make Pakistan cut its military budget, allowing antagonist elements to come into play. Thus, the harrowing situation can threaten Pakistan’s national security. 

Similarly, the economic dilemma can also become a reason for Pakistan to be declared a failed state. The state’s inability to harness economic and political problems, protect property, and maintain its control over territory can obscure its image, making it a failed state. The situation will make the country vulnerable to external and internal threats, including a variety of riots, a plethora of defiance, and security threats from terrorists and neighbouring states.  In particular, over a decade of civil war has made Syria a failed and collapsed state that has lost control of large parts of its territory and borders. After 2000, it underwent limited economic liberalization, which created competition for the already dwindling public resources and deepened socio-economic inequalities. The war also destroyed the agricultural economy and reduced its per capita income, making it fulfil the indicators of a failed state.  Hence, such a distressing future can become Pakistan’s fate if its economic issues continue to increase.  

In addition, decreased economic stability can also lead to regime overthrow. When a state does not meet the demands of its people and their basic needs and necessities are not fulfilled, aggression is aired in the people, resulting in protests, demonstrations, and riots, which ultimately lead to regime overthrow. Pakistan has already undergone the harsh consequences of the economic crisis . For example, the fall of Ayyub Khan, Pakistan’s former President, was caused mainly by his economic policies that led to inflation, unemployment, and the concentration of wealth in a few hands, causing widespread misery in the populace, thus leading to his downfall. His people nullified his economic achievements, and economic policies were rejected as they were not based on the principles of equality and interdependence.  Thus, history may repeat itself if the current financial problems are not addressed.

To ameliorate the economic crisis, Pakistan should adopt immediate efforts to stabilize the country’s economy and guard against the implications of economic meltdown. First and foremost, Pakistan should re-orient its economy from imports to exports, which will result in an outflow of foreign capital. By strengthening exports and lowering imports, the country can recover from the economic depression. For instance , once suffering from an economic crisis, Finland has successfully overcome it by exporting various industrial and artisan products.  Thus, setting up cottage industries and implementing a long-term and multi-pronged strategy will upgrade firms’ productivity and foster quality and innovation, maximizing export potential. Hence, Pakistan can develop economically by exporting furnished goods through long-term financing facilities. 

Second, the Government of Pakistan should set up small-scale industries to help economic development. With the help of industries, the country can create enormous job opportunities and improve the quality of products. Industries can also help mitigate poverty, unemployment, and other social crimes.  According to the Wollongong Research Centre, the contribution of small-scale sectors to India’s economy has played a more significant role in employment growth, production, and export promotion.  For this, Pakistan should increase funds for the infrastructure and development of industries. Besides this, it should also promote a conducive business environment to spur the growth of competitive industries. In conclusion, Pakistan can alleviate the economic crisis by setting up industries. 

Lastly, public participation in the country’s politics should be encouraged at all levels. Politicians play a significant role in developing and implementing economic policies, and most of the time, politicians misuse their authority for their vested political interests. Hence, the country can stabilize the politico-economic conditions by strengthening civil society and educating citizens who can hold politicians accountable for their wrongdoings.  As Abraham Lincoln said, “We, the people, are rightful masters of Congress and the courts.”  Pakistanis have to come to the forefront to fight for their politico-economic rights by raising their voices for their rights, exemplifying public participation. Thus, public participation and awareness should be increased to nip the economic crisis. 

In a critical diagnosis, the economic crisis can become life-threatening for Pakistan’s international standing. The country currently faces the threat of default and can face dire consequences if the economic situation remains unresolved. Unfortunately, the government is still looking towards the International Monetary Fund (IMF) for a loan instead of building its capacity to avoid the catastrophic repercussions. However, Pakistan can achieve economic growth by investing in its resources and human capital. Therefore, there is a ray of hope that Pakistan will move on the economic development road by adopting specific pragmatic measures. 

In conclusion, the implications of the economic crisis are harrowing and alarming. If the evil remains proliferating, this can lead to grim implications for Pakistan, threatening its sovereignty. For instance, monetary loss, natural disasters, and anarchy, are the overriding consequences of the economic crisis that the country can face. Moreover, security dilemmas from terrorists and neighbouring countries may also become the fate of Pakistan if the evil will not be nipped in the bud. Therefore, to escape its self-inflicted crisis, the government must revamp its sustainable economic policies, set up small-scale industries, and increase public participation.

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• The Economic Crisis of Pakistan By Dr Muhammad Khan

ASSESSING the economic indicators of Pakistan, the country is ranked 34th among 39 countries in the Asia–Pacific region.

Indeed, this positioning is very low and the overall economic score of Pakistan is below the regional and world averages.

Economy of Pakistan started slowing down in 2019 and reached its lowest ebb in July 2022. The economic freedom score of Pakistan is 48.8, grading its economy as 153rd freest in the 2022 Index.

Pakistan is facing extreme economic crisis of its history and the incumbent coalition Government is clueless to overcome the financial issues of the state.

The external debt of Pakistan has increased manifolds and its currency is trading at its lowest rate against the US dollar (1USD=225 PKR).

IMF and other financial institutions are imposing very tough conditions for the loan facility, agreed with the previous Government of Imran Khan.

In a way the economic crisis of Pakistan is getting deeper and deeper with each passing day.

The significance of economy can be imagined from a famous quote, “Economy is the start and end of everything” for every sovereign state.

Indeed, the strong economy is the source of national strength and forms the basis for a knowledgeable and resilient work-force of a nation.

In a highly globalised world, significance of the economy has further enhanced since it impacts the international relations among the nation states from the perspective of foreign policy, trade and security cooperation.

Unfortunately, despite heavy taxes and exceptionally high levies on all goods and utilities in Pakistan, there have been downward trends in the economy of Pakistan since last few years.

Despite being an agrarian economy, the essential food items are rapidly getting out of reach for over 70% Pakistani masses.

Inflation is record high and developmental sector is found wanting in all areas of socio-economic development of the state.

Budget of all developmental sectors of Pakistan has been reduced to minimum whereas non-developmental expenditure is increasing with each passing day.

Indeed, not the resources but the poor economic management is considered to be the real cause of deteriorating economy of Pakistan and downward trends in the living standards of 122 million Pakistanis.

In fact, the basic responsibility of the government of Pakistan is to identify and prioritize the problems facing the state and society of Pakistan.

Identifying the problem areas at an early time-frame and focusing to resolve them by all possible means and through better economic management could have saved the state of Pakistan from the ongoing economic crisis.

But, neither the problems identified nor any serious efforts were made to overcome the economic crisis, hurting the state and society alike.

Resultantly, once confronted by financial challenges, they resorted to rush to IMF for a possible rescue.

The IMF has imposed its own pre-conditions for revision and extension of loan to Pakistan. This includes imposition of heavy taxes and levies over the poor masses while there is no cut on the luxuries of the government officials and bureaucracy of the country.

Earlier in 2019, IMF provided 39-month loan to Pakistan under the Extended Fund Facility (EFF).

It was a total of $6 billion loan provided to support economic reform programme of Pakistan.

Despite this loan facility of IMF and other loans from many friendly countries, the incumbent and previous governments could neither reform the national economy nor did provide relief to Pakistani masses.

The government and its economic managers responsible to manage state’s economy could neither appreciate the looming financial crisis nor took timely measures to avoid the financial meltdown of Pakistan.

Resultantly, the country is heading towards an economic disaster which means a lot for a nuclear state like Pakistan.

While the national economy of Pakistan is sliding downwards, there has been unprecedented growth of the various cartels in Pakistan.

These cartels are controlling the prices and supply of all most all critical food items and petroleum products with or without consent of the government.

Indeed, government has become hostage to these internal and external cartels. In most of the cases these cartels are part of the government with sitting Ministers, MPs and advisors.

This was a case with PTI Government and there is no change in spite of regime change.

Despite investigations and proofs against their deliberate kick-backs and corruption, causing heavy losses to national economy and undesired short supply of items in the market, they stand unaccountable and scot-free.

Currently, the economic management of the state is being run through heavy and agonizing taxation system on poor masses which cannot be sustained long-term.

In fact, the economic management of nuclear Pakistan with rivalries all around and multiple fault-lines within cannot be run like a corporate company nor can it be left at the mercy of inept and non-serious economic managers whose inclination is more to ruin Pakistan than profiting it.

The way forward is: a massive restructuring of the economic management of Pakistan through serious, innovative and revolutionary steps where foreign economic dependence is reduced to minimum.

The non-developmental expenditure must be reduced substantially while imposing a ban on the luxuries of government officials, elite class and bureaucracy.

The political crisis is adding fuel to the existing economic crisis. Therefore, there is a need that political leadership sit together and take decisions in the national interest of Pakistan, rather than fighting for their petty political and personal gains.

— The writer is Professor of Politics and IR at International Islamic University, Islamabad.

Source: https://pakobserver.net/the-economic-crisis-of-pakistan-by-dr-muhammad-khan/

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As Misery Multiplies, Pakistanis Rise Up Against the Ruling Elite

Unrest over a range of economic and security issues threatens to deepen the political turmoil that has plagued Pakistan for years.

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By Christina Goldbaum and Salman Masood

Christina Goldbaum reported from London, and Salman Masood from Islamabad, Pakistan.

In almost every corner of Pakistan, anger at the ruling elite is nearing a boiling point.

Thousands have protested soaring electricity bills just outside the capital, Islamabad. In a major port city in the southwest, dozens have clashed with security officers over what they described as forced disappearances of activists. In the northwest, protesters have admonished the country’s generals for a recent surge in terrorist attacks.

The demonstrations over the past few weeks reflect frustration with Pakistan’s shaky, five-month-old government and with its military, the country’s ultimate authority. The unrest threatens to plunge Pakistan back into the depths of political turmoil that has flared in recent years and that many had hoped would subside after the February general election.

Pakistan’s leaders are confronted with a monsoon of problems. The economy is suffering its worst crisis in decades . Anger at an election widely viewed as manipulated by the military remains palpable. Militant violence has roared back after the Taliban’s return to power in neighboring Afghanistan. And Pakistani politics are more polarized than ever, with the country’s most popular political figure sitting in jail after a bitter rift with the military.

The administration of the current prime minister, Shehbaz Sharif, has struggled to establish its legitimacy and has been criticized as little more than a front for the military.

Since Mr. Sharif first came into office in 2022, Pakistan’s generals have wielded an increasingly heavy hand to quash dissent. A national firewall has been installed to censor internet content, the social media platform X has been blocked, security forces have arrested political opponents in droves, and generals have been installed in key positions in the civilian government.

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