The economy of Pakistan has been facing a crisis for the past few years. The country has been struggling with low economic growth, high inflation, a huge trade deficit and an enormous public debt.
The COVID-19 pandemic has exacerbated the situation, pushing the Pakistani economy into a deeper recession. In this article, we will explore the current economic crisis in Pakistan and the factors that have contributed to it.
The Pakistani economy has been in a state of stagnation for the past decade. According to a report of the Asian Development Bank (ADB), Pakistan’s GDP growth is expected at 0.6% in 2023 and 2.0% in 2024, which is insufficient to meet the needs of a growing population. The low growth rate has been attributed to a variety of factors, including political instability, corruption, energy shortages and a lack of investment in infrastructure.
One of the major factors contributing to the economic crisis is the huge trade deficit. Pakistan imports more than its exports, which leads to a massive drain on foreign exchange reserves. The trade deficit has widened considerably in recent years, reaching $23 billion in the first nine months of the fiscal year 2022-23. This has put immense pressure on the Pakistani rupee, leading to a sharp devaluation. The devaluation of the currency has led to an increase in the prices of imported goods, which has fuelled inflation.
Inflation has been another major challenge for the Pakistani economy. Inflation has been consistently high, averaging around 8% in the past few years. The increase in the prices of imported goods, as well as the rising cost of energy, have contributed to the inflationary pressure. The high inflation has eroded the purchasing power of the people, leading to a decline in the standard of living.
The public debt of Pakistan has also been a major concern. The debt and liabilities have been increasing rapidly, reaching a staggering $140 billion in 2023. The debt-to-GDP ratio has also been rising, which is a cause for concern. The high level of public debt has limited the government’s ability to spend on development projects and has increased its reliance on foreign loans.
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The COVID-19 pandemic further worsened the economic crisis in Pakistan. The pandemic led to a decline in economic activity, with many businesses shutting down and people losing their jobs. The lockdowns and restrictions on movement hit the informal sector particularly hard, which is a significant part of the Pakistani economy. The pandemic also led to a decline in remittances, which is a major source of foreign exchange for the country.
The government of Pakistan has taken several measures to address the economic crisis. The government has sought assistance from the International Monetary Fund (IMF) and has implemented an austerity programme to reduce public spending. The government has also devalued the currency to improve the competitiveness of exports and has taken steps to improve the ease of doing business in the country.
The government has also launched a series of initiatives to boost economic growth. The government has launched the China-Pakistan Economic Corridor (CPEC) project, which aims to improve infrastructure and create jobs. The government also launched the Ehsaas programme a few years that was aimed at providing social protection to vulnerable segments of the society.
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Despite these efforts, the economic crisis in Pakistan persists. The government’s austerity measures have led to a decline in public spending, which has further slowed down the economic activity. The devaluation of the currency has led to a rise in inflation, which has hurt the purchasing power of the people. The government’s efforts to improve the ease of doing business have been limited by corruption and bureaucratic hurdles.
In conclusion, the current economic crisis in Pakistan is a result of a combination of factors. The trade deficit, inflation, public debt and the impact of the COVID-19 pandemic have all contributed to the crisis. The government has taken several measures to address the crisis, but these efforts have not been sufficient to bring the economy back on track.