Pakistan Economy Shows Resilience Despite Challenges

Pakistan economy is showing signs of improvement and potential for growth in the future after proving its resilience in post-pandemic era due to effective policy measures, experts say.

Analysts, economists and researchers said the economy is expected to stage a steady growth in gross domestic product (GDP) this year after the new government has assumed charge and set its priorities to address economic challenges on priority basis. They are of the opinion that Pakistan will have to reach an early agreement with the International Monetary Fund (IMF) on a new medium-term facility worth $6 billion to $8 billion, providing an anchor to carry out the difficult reforms.

New Finance Minister Muhammad Aurangzeb has no choice but to setting his sights on a fresh deal with the IMF. Aurangzeb was previously CEO of Pakistan’s largest bank, Habib Bank, after a career at major Western institutions including Citigroup and JPMorgan Chase.

“The new government will have no other choice but to introduce critical reforms on the restructuring of Federal Bureau of Revenue, privatisation of the loss-making state-owned enterprises, broaden base, contain rising inflation and energy prices to provide cushion to the growth sectors and poor masses of the country,” according to the experts.

Growth catalyst

Pakistan, the fifth most populous country and 41st largest economy of the world, has been growing at an average rate of 2.89 per cent in the past five years despite the Covid-19 crisis, slowdown in global economy and higher commodities in the international market.

The IMF and the World Bank projected 2.5 per cent and 1.7 per cent GDP growth for Pakistan during the current financial year 2023-24, respectively. The Asian Development Bank estimated 1.9 per cent increase in GDP while Moody’s Investors Service said economy will return to modest growth of two per cent this year after subdued activity in 2023.

The economy has shown mixed trends in recent years, with periods of growth followed by challenges and setbacks. However, there are some positive indicators showing economic resilience and bright outlook for the country.

Pakistan is among the 18 economies globally, and the only South Asian country, registering improvement in their women, business and law score from 55.6 index to 58.8 index by enacting reforms to improve gender equality, according to the World Bank report.

Another key factor driving the country’s economic growth is its young and growing population. With a median age of 22 years, Pakistan has a large pool of potential workers that can drive economic growth in the future.

In addition, the new government has been focusing on improving its infrastructure and attracting foreign investment in key sectors such as agriculture, livestock, mining, minerals, Information Technology (IT) and energy.

Things to do

Samiullah Tariq, head of research and development at Pakistan Kuwait Investment Company, said the economic outlook of Pakistan is better as the new government accords top priority to address the challenges to bring economy back on track.

“The government has realised that they need to deliver results and address the economic challenges at the earliest,” Tariq told Khaleej Times.

He said agriculture, textiles/value-added apparel, and manufacturing, among other sectors, have potential to drive Pakistan economy. However, the government will have to control twin deficits, broaden tax base, increase foreign exchange earnings, and maintain a strict check on expenditure by rationalising National Finance Commission Award.

In reply to a question about future direction of the Pak rupee, he said it should remain stable untill June at least.

“Future performance of the currency would be driven by IMF programme and commodity prices,” he said.

About the workers’ remittance inflows, he said it is actually a life-line of economy and ease pressure on the rupee as well.

“Remittances absolutely hold the key to stabilise Pakistani economy as they not only increase foreign currency inflows into the economy, but also curtail current account deficit, increase consumption of domestic goods, generate employment and boost revenue generation,” he said.

Driving factors

Dr Qais Aslam, Professor of Economics at Lahore-based University of Central Punjab, said current GDP growth rate is 0.5 per cent and the IMF has envisaged it to be two per cent.

“In my view, the growth rate would be between 0.5 per cent and one per cent as I do not see any substantial economic initiatives by this PDM2 government.

“Interest rates are at 22 per cent, inflation nears 40 per cent and the US dollar is appreciating again, because of which electricity, gas and petrol prices are on the rise. New investment would not come under these conditions,” Aslam said.

About the driving sectors of Pak economy this year, he said although large-scale industry should be the engine of growth, but actually it is the banking, IT and other services sectors that are going to drive the economy.

“Also a major contributor to growth remains the untaxed (gray) and the illegal (black) economy. There is very little incentive to check the undocumented and corrupt part of the economy,” he said.

Real challenges

Dr Aslam said the new government will have to address economic challenges to ensure relief to poor masses of the country.

“Top challenges for the economy in the short run remain the duel deficits — external imbalances on the monetary side and fiscal deficit on the fiscal side, and the IMF approach for a contractionary monetary and fiscal policies. So GDP growth cannot be dynamic,” he said.

Long-term challenges are the restructuring of the four factors of production — skill-based education, land reforms, SME management to be aligned to export markets and capital (financial and technological) formation — all are not in the vision of this government,” he said. Institutional reforms are also much needed in order to solve the issues of governance, therefore status co would remain, he opined.

“Taxes would increase, inflation would rise and Pakistan’s dependence on foreign loans would rise leaving very little space for reforms and growth. A big challenge is to repay about $25 billion till the end of this fiscal year,” Dr Aslam concluded.

— muzaffarrizvi@khaleejtimes.com

• Supplements