Stabilizing Pakistan’s Economy: Reforms, Challenges, and Opportunities
- Economic Challenges: Pakistan faces numerous economic challenges, including poverty, unemployment, corruption, fiscal deficits, and political instability, all of which hinder long-term growth and stability.
- External Debt and IMF Dependency: Despite improvements due to IMF loans and foreign investments, Pakistan's economy remains heavily dependent on external support, leading to concerns about sustainability.
- Need for Structural Reforms: To achieve lasting growth, Pakistan must implement comprehensive reforms in agriculture, industry, energy, and IT, while ensuring political stability and national unity to attract investment and drive sustainable economic development.
When it comes to Pakistan’s economy, several challenges hinder its stabilization. These challenges range from minor to major issues, including poverty, unemployment, lack of awareness and support for entrepreneurship, corruption, failure to implement economic reforms, fiscal and trade deficits, technological advancement, energy shortages, foreign debts, and limited industrial and agricultural production and services. While the list of challenges continues, even when improvements are made in some sectors, others lag. This raises the persistent question: Will Pakistan ever be able to improve its economy, or will it continue to struggle to survive on external support?
In 2024, the economy showed improvement, primarily due to a $7 billion loan from the International Monetary Fund (IMF). According to statistics, Pakistan’s Gross Domestic Product (GDP) increased by $37.1 billion. A bullish trend was observed in the Pakistan Stock Exchange due to a rise in KSE-100 stock values. This growth was further fueled by financial support and foreign reserves from both bilateral and multilateral loans. According to a report by the State Bank of Pakistan, foreign investment inflows totaled approximately $377 billion, with contributions from countries such as Saudi Arabia, the UAE, China, the US, the UK, and others.
These investments spanned various sectors, including agriculture, energy, financial businesses, tourism, chemicals, construction industries, and mining, with the Special Investment Facilitation Council (SIFC) playing a key role in stabilizing the economy. The State Bank of Pakistan also lowered the annual interest rate from 15% to 13% to boost the economy, encourage businesses and exports, and reduce inflation. As per the Pakistan Bureau of Statistics, the inflation rate reached its lowest reading of 4.1%.
While the economy exhibited positive changes, several constant factors continued to destabilize it, such as political tensions due to allegations of election interference, civil-military disagreements, and persistent dependence on IMF loans. According to Trading Economics global macro models, the unemployment rate in Pakistan reached approximately 6% by the end of 2024, contributing heavily to the country’s brain drain. Large-scale manufacturing declined by 0.8% during the Jul-Nov FY2024 period due to high input costs, negatively impacting exports.
The 2020 Government of Pakistan Inquiry Report on Independent Power Producers (IPPs) revealed that payments were made to IPPs regardless of whether electricity was utilized, causing a tremendous financial burden on the exchequer. While Pakistan has agreed to conform to IMF policies, the conditions—such as subsidy cuts, diversion of funds from critical sectors like education, health, and infrastructure; high interest rates for loans; privatization; high energy prices; and influence on governance structures—raise a critical question: Will Pakistan ever break free from this debt cycle and achieve sustainable economic relief?
Economic indicators in Pakistan have always been volatile. Unresolved political issues between Pakistan Tehreek-e-Insaf (PTI) and Pakistan Muslim League (PML) keep the political arena polarized and unstable, discouraging foreign investments. Under Biden’s administration, the IMF has been lenient with Pakistan; however, this is unlikely to be a permanent stance, especially under a potential future Trump administration, which might enforce strict conditions and interfere in Pakistan’s internal affairs.
Geopolitical tensions, such as those between Iran and the US and shifting US-China relations, pose significant risks to Pakistan’s economy, particularly in the context of Pak-China relations under CPEC. Rising oil prices could increase energy costs, while reduced remittances from the Middle East might strain foreign reserves. Additionally, potential US tariffs on textiles could impact export revenues, unemployment, and the trade balance, exacerbating economic instability and reliance on external aid.
Looking ahead to 2025, the “Uraan Pakistan” economic reforms introduced by Prime Minister Shehbaz Sharif aim to focus on exports, e-Pakistan, the environment, the Pakistan economy, energy, and equity through investments and reforms in IT, agriculture, exports, and mining. This includes negotiations with independent power producers (IPPs) following recent macroeconomic stabilization after receiving IMF loans. However, the Prime Minister has stressed that the plan’s success relies on national unity and political harmony. He also highlighted significant challenges, including Rs. 6 trillion in losses by state-owned enterprises over the past decade and circular debts of Rs. 2-3 trillion in the electricity and gas sectors.
Pakistan’s multifaceted economic challenges require structural reforms. Modern farming methods can increase agricultural yields, and subsidies can help farmers. The industrial sector needs diversification beyond textiles. Pakistan’s industrial base is diminishing due to high production costs, outdated machinery, and a lack of investor confidence. Agro-climatic zones can produce value-added crops, dairy products, and livestock. With abundant wind, solar, and hydropower resources, Pakistan has the potential to develop renewable energy projects to address energy shortages. The country is rich in mineral resources such as gold, copper, coal, and gemstones, offering opportunities for international collaboration in mining with countries like the UAE and Saudi Arabia.
Pakistan’s cultural, historical, and scenic sites make it a prime destination for tourism. Its strategic location between South Asia, Central Asia, and the Middle East could position it as a regional trade hub through expanded transportation routes under CPEC, exemplified by Gwadar Port. Additionally, IT adoption can enable more efficient tax reforms. Public-private partnerships are needed to improve the quality and accessibility of education. Integrating IT and e-commerce into the curriculum is essential to equip students with the skills required to thrive in the modern economy.
While several reforms have been introduced by the current government, Pakistan still needs extensive, long-term economic reforms. Economic growth is unlikely to last without structural changes. Loans from external sources may provide temporary stability and growth, but continuous dependence can be harmful in the long run, especially when a country like Pakistan teeters on the verge of default. With untapped markets offering significant potential for growth, the government must prioritize essential economic reforms. However, achieving this requires political stability and national harmony.
The views and opinions expressed in this article/paper are the author’s own and do not necessarily reflect the editorial position of The Spine Times.
Kainat Batool
The author is a graduate with a Bachelor of Business Administration, majoring in Finance, from BUITEMS, Quetta. She is also an alumna of the Women2Women America International Leadership Program.
