Pakistan’s Economic Turmoil

Pakistan, a country of more than 250 million people enriched with all sorts of natural resources and minerals, is blessed with 4 full blooming seasons unfortunately, it has been under economic crisis and turmoil since its independence. There are several reasons why an economy may experience a period of economic plight. Some of the common causes include a decrease in consumer spending, a decline in business investment, weak international trade, high inflation, political instability, and natural disasters, among others. Additionally, economic policies and decisions made by government officials can sometimes have unintended consequences that negatively impact the economy. However, by implementing sound economic policies and encouraging responsible business practices, it is possible to mitigate the effects of economic hardship and promote long-term growth and stability.

Since its Independence Pakistan's economy is facing several challenges, including political instability, corruption, a weak tax system, low human development indicators, an energy crisis, and a lack of foreign investment. The country has also struggled with a large trade deficit, high inflation rates, and a reliance on imports. Additionally, the COVID-19 pandemic severely impacted Pakistan's economy, causing a decline in revenue and an increase in unemployment. However, the government and various stakeholders are working on implementing policies and measures to improve the economic situation, address these issues, and promote economic growth through initiatives like the China-Pakistan Economic Corridor (CPEC) and the National Financial Inclusion Strategy (NFIS).

Talking about the poor economic situation of Pakistan there are several economic indicators and factors that affect Pakistan's economy. Gross Domestic Product (GDP), inflation rate, exchange rate, interest rate, and balance of payments are some of the key economic indicators that are closely monitored by policymakers, analysts, and investors. In addition to these indicators, other factors that can impact Pakistan's economy include political stability, regulatory environment, infrastructure development, energy crisis, foreign investment, and international trade policies. These factors can impact the country's economic growth, job creation, business opportunities, and overall investment climate. Let’s briefly take them one by one:

Declining Gross Domestic Product:    

                                     

Gross Domestic Product (GDP) is a way of measuring the economic activity of a country. It represents the total monetary value of all the goods and services produced within a country's borders during a specific period, periodically a year. GDP is often used as an indicator of the economic health and growth potential of a country. According to the latest data available, the Gross Domestic Product (GDP) of Pakistan for this year is expected to be around USD 264 billion. it has been reported that Pakistan is facing some challenges with its GDP. However, with the support of the government and continuous efforts from various sectors, the country is working towards improving its economy.

Surging Inflation Rate:    

As we all know that Inflation rate is the rate at which the general level of prices for goods and services is rising over some time, typically measured on an annual basis. Pakistan's inflation rate has been a major issue for the country in recent years. The current inflation rate in Pakistan is in double digits. This means that prices of goods and services are increasing at a very high rate. Many factors contribute to inflation in Pakistan. One of the main causes is the devaluation of the Pakistani rupee., with that it becomes more expensive to import goods, which in turn causes prices to rise. Additionally, Pakistan has faced a shortfall in the production of goods, which has led to higher prices. To address inflation, the government has taken several measures such as increasing interest rates, reducing import duties on essential commodities, and imposing price controls on certain products. However, these measures have not been enough to bring down inflation to a desirable level. The government needs to implement effective policies that can address the root causes of inflation, while also taking into account the needs of the general public.

Depreciating Exchange Rate:  

        

There are several issues related to the exchange rate that Pakistan is currently facing. One of the main concerns is the depreciation of the Pakistani Rupee against major currencies such as the US Dollar, Euro, and British Pound. This has led to an increase in the cost of imported goods, which ultimately contributed to inflation. Another issue is the large current account deficit, which means that Pakistan is borrowing heavily to meet its import requirements. This has put pressure on the country's foreign exchange reserves, which could further weaken the value of the Pakistani Rupee if the situation persists.

High-Interest Rate:      

Recently the interest rates in Pakistan are skyrocketing. There can be several reasons for high-interest rates in Pakistan. One of the main reasons can be inflation. When inflation is high, the Central Bank increases the interest rates to control the money supply. Another reason can be the government's borrowing needs. When the government borrows a lot of money, it puts pressure on the interest rates. Additionally, political instability, low foreign investment, and a weak currency can also contribute to high-interest rates. With these high-interest rates, borrowing becomes more expensive for businesses and consumers, which can lead to a decrease in spending and investment, resulting in slowing economic growth. High-interest rates can also lead to a decrease in borrowing, spending, and in the supply of money in the economy. Eventually leading to higher prices for goods and services, which can be particularly challenging for low-income individuals and families. Overall, high-interest rates can have a complex and far-reaching impact on Pakistan's economy, and it's important for policymakers to carefully consider the potential consequences of any decisions related to interest rates.

Deficit Balance of Payment:       

                

Knowing that the Balance of Payment is an important measure of a country's economic health. Pakistan is currently facing a deficit Balance of Payment situation, which can negatively impact Pakistan’s economy. A deficit means that the country is spending more on imports than it is earning from exports and other sources which eventually leads to a shortage of foreign currency, which can in turn cause inflation and reduce the value of the local currency. To address this, Pakistan may need to take measures to boost exports, reduce imports, or attract more foreign investment.

Political Instability: 

Unfortunately, Pakistan is prone to Political instability from its very existence, having a significant impact on Pakistan’s economy. Some of the potential impacts and outcomes of such political instability include 1. Reduced foreign investment: Political instability can create an environment of uncertainty and risk, which can make foreign investors hesitant to invest in the country. 2. Disruptive policies: Political instability can lead to changes in government policies, which can be disruptive to businesses and markets. 3. Economic slowdown: Political instability can lead to an economic slowdown as investors and businesses wait for stability before investing and making decisions. 4. Social unrest: Political instability can also lead to social unrest, which can have negative impacts on businesses and the economy.

To counter this situation some potential solutions to political instability and its impact on Pakistan’s economy include: 1. Encouraging political stability: Efforts to encourage political stability, such as improving governance and reducing corruption, can help to create a more stable environment for businesses and investors. 2. Promoting foreign investment: Encouraging foreign investment through policies that protect investors and promote economic growth can help to increase economic activity in the country. 3. Diversifying the economy: Promoting economic diversification can help reduce political instability's impact on specific industries and sectors. 4. Strengthening social safety nets: Strengthening social safety nets can help to mitigate the impact of economic slowdowns and social unrest on vulnerable populations.

Energy Crisis:       

The energy crisis in Pakistan has had a significant impact on the country's economy. The power shortages have resulted in a decline in industrial production, which has led to lower exports, higher unemployment, and a decline in the overall economic growth rate. To solve this issue, Pakistan needs to focus on developing alternative sources of energy, such as solar and wind power. In addition, the country needs to improve its energy infrastructure by investing in the transmission and distribution system. The government can also encourage the private sector to invest in energy by providing incentives and subsidies. Another solution is to encourage energy conservation. This can be done by educating the public about the importance of energy conservation and by implementing energy-efficient policies for buildings and appliances.

Negligible Foreign Investment:           

The impact of negligible foreign investment on Pakistan's economy can be significant. Without foreign investment, Pakistan's economy may struggle to grow and develop. Foreign investment brings in new capital, which can be used to build new businesses, create jobs, and invest in new technologies or infrastructure. Without this investment, Pakistan may not be able to keep up with its global competitors, and its economy may stagnate.

The easiest solution to this problem is to actively encourage foreign investment. This can be done by creating a business-friendly environment, reducing bureaucracy, and offering tax incentives to foreign investors. Pakistan could improve its infrastructure, such as roads, ports, and airports, to make transporting goods and resources easier for foreign investors. Thirdly focus on building up local businesses and industries. By supporting local entrepreneurs, Pakistan can create new jobs and stimulate economic growth from within. This can also help attract foreign investment, as local businesses can serve as partners or suppliers to foreign firms.

There is no doubt that the condition of Pakistan’s economy is in very bad shape There are different ways to manage the declining economy of Pakistan. Some steps that can be taken to improve Pakistan's economy include implementing policies that promote investment and trade, reducing corruption, improving infrastructure, and investing in education and technology. Promoting entrepreneurship and small business development could lead to job creation and economic growth. With the right strategies and determination, positive changes can be made to improve Pakistan's economy. Some suggestions doe improving depleting economy of Pakistan are:       

1. Promote exports: Encourage businesses to export their products to new markets. This will help bring in foreign exchange and create jobs.

2. Attract foreign investment: Offer incentives to foreign investors to invest in Pakistan. This will create jobs and stimulate the economy.

3. Support small businesses: Provide financial and technical support to small businesses. This will help them grow and create more jobs.

4. Reduce corruption: Implement policies to reduce corruption in government and business. This will increase investor confidence and attract more investment.

5. Improve infrastructure: Invest in infrastructure projects such as roads, bridges, and airports. This will help businesses operate more efficiently and attract more investment.

6. Increase tax revenues: Implement a fair and effective tax system to increase government revenues. This will help fund social programs and infrastructure projects.

7. Improve education and healthcare: Invest in education and healthcare to improve the quality of life for citizens and attract more investment.

With these few ideas government & people of Pakistan will hopefully be able in a position to manage the declining economy of Pakistan. However, it will require a concerted effort from the government, businesses, and citizens to turn things around in a positive direction. 

By: Ovais Asad Khan