economic crisis in pakistan essay outline

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Essay Outline: Economic Crisis in Pakistan: Challenges and Prospects

Table of Contents

CSS Essay Outline: Economic Crisis in Pakistan: Challenges and Prospects

By: mureed hussain jasra (csp), introduction.

1. Global economic crisis 2. Economy of Pakistan at a crossroads 3. Causes of economic decay In Pakistan

Challenges of Economic Crisis in Pakistan

1. Dwindling foreign exchange reserves 2. Current account deficit increasing exponentially 3. Stagnant Small and Medium Enterprises (SMEs) 4. Reduced Foreign Direct Investment (FDIs) 5. Shameful picture on human development index 6. Social fabric of Pakistan torn by a never ending war on terror 7. Myopic financial policies leading to fiscal quandary of Pakistan: Relying on IMF 8. Regressive taxation exempting the wealthy and squeezing the poor of Pakistan 9. Clienteles politics directly conflicting progressive reforms in fiscal policy 10. Rampant corruption and money laundering further festering the economic crisis of Pakistan 11. Mass illiteracy: biggest hurdle in the way of producing a well-trained workforce concentration of wealth in a few hands

Prospects of Economic Crisis in Pakistan

1. Increasing political awareness translating into positive political will necessary for economic progress in Pakistan 2. Investment by foreign countries and individual 3. Peaceful environment due to curtailment of terrorism: conducive environment for economic stability in Pakistan 4. Burgeoning middle class auguring well for economic prognosis of Pakistan 5. Policy initiative keeping public opinion at the center: a sure way for a stable economy 6. China-Pakistan Economic Corridor (CPEC) as a harbinger of economic stability 7. Advances in science and technology 8. Continuation of democracy laying a frame work of stable Pakistan 9. A robust foreign policy centered on regional cooperation to achieve trade viability 10. Restoration of relation with neighboring countries

About the author

Mureed Hussain Jasra (CSP)

Mr. Mureed Hussain Jasra boasts of a diverse professional background. Being a Civil Servant, he has served at important positions in the Federal Secretariat and autonomous bodies dealing with the important policy level matters. Prior to joining Civil Service of Pakistan, he served as a lecturer of English in the Federal Government of Pakistan and won accolades in academic circles and intelligentsia for his professional commitment and devotion to work. Mureed Hussain Jasra's current fame among the CSS aspirants owes to his stellar success as being the most towering CSS coaching teacher and mentor. Under his careful mentorship, many young men and women have won distinctions in the CSS/PMS competitive examinations and are now serving the nation in different capacities. He regards teaching as the singular driving passion of his life and has founded Civil Services Preparatory School for the young aspirants. Mr. Jasra is an avid reader of books and loves debate on history, culture, literature and governance. He is Masters in English Literature.

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I want to ask something, plz answer if you have credible information. Is the paper pattern going to be changed from the next year? Will the exams of 2020 be as per Three Cluster System?

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Pakistan’s economic crisis

• Sonia Mishra

FACULTY Q&A

Pakistan is facing a multidimensional crisis. Its economy is teetering on collapse due to a possible political crisis, the rupee plummeting and inflation at decades-high levels, devastating floods, and a significant shortage of energy.

Offering his insight on the situation is John Ciorciari, professor and associate dean for research and policy engagement at the University of Michigan’s Gerald R. Ford School of Public Policy. He is also director of the Ford School’s International Policy Center and Weiser Diplomacy Center.

How bad is the economic crisis in Pakistan, especially after the floods?

Pakistan faces a severe economic crisis and clearly requires external support. Foreign exchange reserves are at dangerously low levels—enough to pay for only a few weeks’ worth of imports. Inflation is at its highest levels in decades, growth is sagging and the central bank has raised interest rates sharply to address a weak currency. Food and fuel prices are causing real pain to ordinary people, and the country’s economic challenges are only exacerbated by the devastation wrought by the floods.

The economy was struggling even before the floods. What are some of the other causes?

Pakistan’s economic crisis has numerous causes. Weak governance and political instability have been significant factors, weakening investor confidence in the country and contributing to corruption and pork-barrel politics that undermine the country’s fiscal position. Pakistan is also highly import-dependent, particularly with regard to energy, which renders it acutely vulnerable to hikes in global oil and gas prices. The pandemic did not help, and Pakistan’s tense relations with India continue to deprive it of a potentially transformative trading and investment partner.

The international community has pledged $9 billion to help them. Some of the biggest donors are Saudi Arabia and China. Do you think these governments will expect support in any way from Pakistan in return?

Donors such as China and Saudi Arabia may not include many explicit conditions to their aid, but implicit strings are always attached. China will look to Pakistan for favorable development opportunities, such as the energy corridor running from the Arabian Sea to China’s western provinces and the strategically vital port of Gwadar. China will also seek Pakistan’s support on geopolitical issues ranging from the Taiwan Strait to Afghanistan and Ukraine.

Saudi Arabia sees Pakistan not only as a key oil purchaser and source of migrant labor but also as a key Sunni-majority ally vis-à-vis Iran. Riyadh will expect Islamabad to support Saudi initiatives in the Persian Gulf and Saudi leadership stemming from its role as guardian of the holy sites of Mecca and Medina.

Is $9 billion enough to help them rebuild and make it out of the crisis?

Pakistan will need an infusion of more than $9 billion to climb out of the crisis. However, much should come from private sources. The value of IMF funds is to provide a stopgap, rebuilding confidence in a way that encourages private flows to resume.

Will Pakistan be able to protect itself from inevitable future climate disasters?

Pakistan is highly vulnerable to climate-linked disasters and cannot alone build a fortress against climate change. Stronger domestic preparedness and resilience are clearly needed, but ultimately Pakistan’s fortunes will hinge primarily on global progress to address the drivers of climate change.

Will all the money pledged to Pakistan be used towards flood recovery, or do you expect some might help their federal reserves that were at dangerous levels before the flood?

First and foremost, IMF funds will help Pakistan avoid default on its international obligations, which could have seismic consequences for its economy and its people. Replenishing foreign reserves is crucial in this regard. Aid programs will also help address the flood recovery, but this will be much more manageable if Pakistan’s reserves rise to levels that instill confidence in its ability to pay its debts.

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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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CARBS Business Review

Pakistan’s economic crisis: unveiling the causes, impacts, and remedies, dr. ali sajjad, 30 october, 2023.

Pakistan has been grappling with an economic crisis in recent years, which is marked by high rates of inflation, a declining currency, and an increasing debt load. The country’s population has been significantly impacted by this crisis, with many people finding it challenging to meet their financial obligations. This blog will cover the reasons behind the current economic crisis, its effects on the nation, and potential solutions to the problem.

Causes of Crises

1 – external debt.

Pakistan’s current economic crisis is primarily caused by its external debt, which amounts to $126.3 billion. The country owes this debt to a wide range of creditors, including multilateral organizations, Paris Club nations, private and commercial lenders, and China. The growth of this debt load can be attributed to several factors such as excessive borrowing, slow growth, weak exports, and currency depreciation. Pakistan’s foreign exchange reserves are currently around $4 billion, which is insufficient to pay for even one month’s worth of imports.  As a result, there is a significant chance that the nation will not be able to pay its debts in full

2 – Inflation

Pakistan is currently facing a decline in the purchasing power of its populace and an increase in poverty due to a record-breaking inflation rate of over 25%. The rising costs of food, fuel, electricity, and imported goods are the primary causes of this inflation.  The government’s expansionary fiscal and monetary policies, which were implemented to boost the economy in the face of the COVID-19 pandemic, have further exacerbated the inflationary pressure.

3 – Energy Crises

Pakistan is currently dealing with a persistent energy crisis that has seriously hampered its ability to produce goods and expand its economy. The country relies heavily on imported petrol and oil, which are expensive and prone to price volatility. Unfortunately, poor management, corruption, and a lack of investment in renewable energy sources have resulted in insufficient and inefficient domestic energy production. As a result, Pakistan frequently experiences load shedding and power outages, which negatively affect millions of homes and businesses. The country’s GDP has decreased by up to 4% recently as a result of energy shortages.

4 – Political Instability

Pakistan’s financial instability is significantly impacted by its political instability. Frequent changes in government, governance, and political unrest have weakened foreign and domestic investor confidence. This has led to a decrease in foreign direct investment (FDI), causing capital flight and lowering the likelihood of economic growth. Exchange rate volatility, caused by political unrest, harms businesses that depend on stable exchange rates for international trade. Inconsistent economic policies and budgetary constraints lead to budget deficits and increased borrowing, elevating the risk of sovereign debt crises. Insecurity issues related to political instability, including terrorism and civil unrest, disrupt economic activities, deter foreign investment, and damage infrastructure, collectively contributing to economic and financial instability in Pakistan. The political uncertainty has undermined the confidence of investors, creditors, and the public in the government’s ability to address the economic challenges.

Consequences of Crises

1 – social unrest.

Due to the economic hardships the Pakistani people have experienced, there is a great deal of unhappiness and frustration, which has taken many different forms, including protests, strikes, riots, and violence. The social fabric and confidence in the government have been damaged by the rising cost of living, unemployment, inequality, and insecurity. The nation’s stability and unity are in danger as a result of the economic crisis’s escalation of ethnic, sectarian, and regional tensions.

2 – Security challenges

Pakistan’s current economic crisis has significantly weakened its capacity to address both internal and external security challenges. The country is currently grappling with a resurgence of terrorism perpetrated by various militant groups. These groups have exploited the economic crisis to further their nefarious activities, posing a significant threat to Pakistan’s stability and security.

3 – Regional implications

Significant effects of Pakistan’s economic crisis on regional stability and growth. Pakistan, a nuclear-armed nation with a population of more than 200 million, is very significant from a geopolitical standpoint. The potential collapse or instability of Pakistan’s economy could have significant repercussions for its neighbors and the global community.

Solutions to the Crisis

To address the economic crisis in Pakistan, the government and international community must act urgently and comprehensively. The following are some possible solutions:

1 – Debt relief

Pakistan may think about asking for debt relief from its creditors to lessen payback pressure and spend resources for growth. The government can negotiate a favorable debt rescheduling or restructuring with its creditors. Pakistan might also receive crucial financial aid and policy direction by asking the International Monetary Fund (IMF) for help in restarting the halted bailout program.

2 – Structural reforms

It is essential to put structural changes into place to address the underlying causes of Pakistan’s economic problems. To lower inflation, the budget deficit, and the national debt, the government should implement responsible fiscal and monetary policies. To increase revenue production and boost efficiency, it is essential to improve tax collection and expense management. Additionally, expanding export markets and encouraging the export sector can increase foreign exchange revenues. Reduced reliance on imported oil and gas can be achieved by making investments in the energy sector and the development of renewable energy.

3 – Political dialogue

Pakistan must resolve its political crisis through constructive dialogue and consensus-building. The government and the opposition should engage in a peaceful and productive dialogue to end their confrontation and find a mutually acceptable solution to their differences. The government and the opposition should also work together to address the economic challenges and implement the necessary reforms. Both parties must respect the rule of law, the constitution, and the democratic process to ensure the legitimacy and stability of the political system.

4 – International collaboration

By enlisting the aid of its allies and partners, including China, Saudi Arabia, Turkey, Iran, and the United States, Pakistan can improve its international collaboration. This may result in financial support, business opportunities, easier commerce, and technological breakthroughs. The government should also improve ties with its neighbors, especially with India and Afghanistan, to promote regional peace and cooperation. By taking part in regional initiatives, Pakistan can gain from regional connection and integration.

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Dr. Ali Sajjad is currently working as an Assistant Professor at Chaudhary Abdul Rehman Business School, Superior University. From the University of Utara Malaysia, he obtained a PhD in Banking and Finance. Moreover, he is a researcher having years of teaching and research experience. He has several publications and his area of research is accounting, finance, entrepreneurship and Islamic finance.

Please note that all opinions, views, statements, and facts conveyed in the article are solely those of the author and do not necessarily represent the official policy or position of Chaudhry Abdul Rehman Business School (CARBS). CARBS assumes no liability or responsibility for any errors or omissions in the content. When interpreting and applying the information provided in the article, readers are advised to use their own discretion and judgement.

If you are interested to write for CARBS Business Review Contact us !

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Pakistan Economic Crisis [UPSC Notes]

Pakistan, India’s neighbour, has been in a tight spot over its economy for some time now. Amidst very high inflation and extremely low forex reserves, the country has been denied further funds from the International Monetary Fund (IMF). This is an important development in international affairs and is hence a relevant topic for the IAS exam . In this article, you can read all the latest about the economic crisis in Pakistan.

A delegation from the IMF arrived in Pakistan to attempt last-ditch negotiations to restart crucial financial aid that has been frozen for months. As Pakistan fights a worsening economic crisis, the country’s prime minister claimed that the government would have to accept “beyond imagination” IMF bailout requirements. For fear of reaction before the upcoming elections in October 2023, the Pakistani administration has refused to implement the tax increases and subsidy reductions that the IMF has required.

Economic Crisis in Pakistan Explained

The Pakistani economy is in dire straits as explained below.

• High Inflation: Pakistan experienced a high inflation in 2022 of about 24.5%. The percentage was about 29% higher in rural Pakistan.
• High Indebtedness: Pakistan has long struggled with a number of issues; its current condition is not new. Due to this, Pakistan is heavily indebted to friendly countries and the International Monetary Fund (IMF).
• Weak External Position : Pakistan was finally taken off the Financial Action Task Force ( FATF ) grey list in 2022, after being on it for many years. This had an impact on Pakistan’s standing globally and led to the imposition of several economic sanctions.
• Food Crisis: The cost of perishable foods has increased by over 56%. In Pakistan, the cost of wheat flour has been steadily rising to uncomfortable proportions.
• Rising Terrorism: In an effort to split Pakistan into two countries, Tehreek-e-Taliban Pakistan (TTP) has increased its terrorist activities there since 2022.

Crisis in Pakistan Causes

Some of the major reasons for the current situation in Pakistan are:

• 2022 floods: The floods in Pakistan in 2022 cost the nation an unprecedented $3 billion in damages, destroyed essential infrastructure, uprooted 8 million people, and reduced domestic output.
• Economic policies that are inconsistent and procyclical : Many of Pakistan’s growth-enhancing initiatives came at the expense of growing vulnerabilities and enduring structural and institutional shortcomings.
• Local problems: According to analysts, Pakistan’s distribution challenges are more of a concern than its insufficient supply levels, which have led to shortages and price increases.

IMF Bailout Package for Pakistan

• A nation is in serious economic trouble when it approaches the IMF for a loan.
• To pay for imports and loan repayments in particular, it lacks sufficient foreign currency (or “dollars”). 
• Basically, the nation is unable to pay its debts abroad. It hence requires a bailout.
• But the IMF will set some restrictions. Spending less, both at home and abroad, is a fundamental requirement.
• Increasing energy rates
• Imposing more taxes
• Artificial control over the exchange rate

About Extended Fund Facility (EFF):

• It was created to help nations dealing with severe payment imbalances brought on by structural barriers, poor growth, and an inherent weak balance-of-payments position.
• It offers support for comprehensive initiatives that include the regulations required to permanently address structural inequalities.
• It serves to assist national economic plans aimed at achieving macroeconomic stability and sustainability in line with robust and long-lasting poverty reduction and growth.
• The Extended Credit Facility (ECF) might also act as a catalyst for new international aid.
• It is accessible to all member nations that meet the requirements of the Poverty Reduction and Growth Trust (PRGT) and have a persistent Balance of Payments (BOP) issue.
• Assistance under an Extended Credit Facility (ECF) agreement is given for an initial period of three to five years, with a five-year overall maximum.
• Additional ECF arrangements may be approved after the expiration, cancellation, or termination of an ECF arrangement.
• Under the ECF, member nations consent to put in place a series of measures that will advance them toward a long-term, stable, and sustainable macroeconomic position.
• The letter of intent from the nation outlines these pledges in detail, along with any additional terms.

Pakistan Economic Crisis Explained:- Download PDF Here

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Economic crisis in Pakistan - ESSAY

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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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Terrorism is one of the most disastrous problems being faced by Pakistan from decades. It has been continuously hollowing country’s social and economic structure with great intensity and frequency. Poor law and order situation of Pakistan is hanging like a sword on its social and economic growth. Investors are afraid to invest in country due to unpredictable and horrible conditions disturbing economy at many fronts.GDP of Pakistan suffers the most from this chronic problem. The lucrative market of Pakistan is also depriving from the deserved foreign investment that comes in the form of Foreign Direct investment (FDI) inflow due to poor law and order situation and political instability prevailing in the country. The purpose of this study is to examine the impact of terrorism on GDP and FDI of Pakistan. The methodology adopted for study includes both descriptive and statistical procedures to check out the relationship in which we incorporated the data of last decade to get reliable re...

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During the last five years, Pakistan has traversed the road from a difficult default situation on its external payments to a vigilant program under the International Monetary Fund and finally reestablished access to international capital markets. GDP growth rate has exceeded 6 percent, inflation had remained under control for four out of five years, fiscal deficit has been reduced significantly, public debt ratios have declined, external debt burden has been lowered, exchange rate has remained stable, exports have almost doubled, tax revenues are recording double digit growth, interest rates had never been at such low levels in the history, remittances of Pakistanis overseas have multiplied by a factor of four, foreign exchange reserves have expanded twelve times from their 1999 level and unemployment is on a downward slide.

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Pakistan Grapples with Economic Challenges in 2022–23 Budget

By G.B. Sahqani

In fragile economies, a small political shake-up can disturb a country’s entire development process, slowing down the pace of economic activity, creating a sense of insecurity in the financial sector, and diverting the nation’s progress toward economic security. All of this can result in another set of problems. This is exactly what happened in Pakistan almost three months before the announcement of the federal budget for 2022–23.

Economic and Political Background to the Budget

The coalition government faces mountainous issues: spiraling inflation, massive devaluation of the Pakistani rupee against major world currencies, increasing fuel prices, and the drying-up of foreign currency reserves. Surrounding all of these challenges is the fear of a debt default.

According to recent data from the State Bank , Pakistan has:

• Net reserves of $8.8 billion;
• Commercial bank reserves of $5.67 billion;
• A current account deficit for the financial year 2021–2022 of $17.41 billion and for July 2022 of $3.13 billion; and
• A balance of trade defici t for the financial year 2021–2022 of $44.71 billion and for July 2022 of $3.35 billion.

In July 2022, national Consumer Price Index inflation increased to 24.9% (from 21.3% in the previous month). So far this year, GDP has grown at a rate of 5.97% (against a target for 2022–2023 of 5%).

Much of Pakistan’s political history consists of decisions that were made without considering the economic consequences. Moreover, many previous governments could not succeed in the economic realm because they did not have a good team of economists who could formulate sustainable economic policies. Governments relied mostly on bankers or chartered accountants to run the Ministry of Finance and failed to put the country on a sustainable development track.

The continuing economic problems have been caused by inconsistent economic policies, pursuit of the wrong priorities, and bad governance. This is why Pakistan has not significantly developed over the last 75 years. Fiscal policies have also lacked consistency—subsequent governments changed policies to prioritize certain sectors, resulting in unstable economic conditions.

Some of these facts were highlighted by the new finance minister in his budget speech :

“Every year, a different person used to present budget and every year … economic policies of the government would change due to which confidence of investors and development partners was shaken.”

“In emerging market countries, tax-to-GDP ratio is around 16%, but in Pakistan it is 8.6% at the moment.”

Each new government has blamed the previous one for the bad economy, but none of them has been serious about pulling the country out of the economic crisis. Governments have joined the International Monetary Fund program to overcome fiscal problems and reduce the budget deficit, but they then spend more (and earn less), using most of their revenue to repay the national debt.

In the fiscal year 2022–23, Pakistan’s total debt servicing payment is estimated to be 3.95 trillion Pakistani rupees ($17.9 billion). Public debt (as of March 2022) was 4.44 trillion rupees (72.5% of GDP).

Pakistan’s tax governance remains weak. The state has never been able to create an iron will to collect revenue through good governance, better policies, and a strong tax culture. There is no serious documentation initiative to register retail businesses, even in large cities, and tax them according to their income.

Total tax collected in financial year 2021–22 is 6.125 trillion Pakistani rupees. The revenue target for the year 2022–23 is 7 trillion rupees. Most of the time, the Federal Board of Revenue meets the revenue targets, but that does not mean that the collected amount is the tax due from a nation of 220 million. According to an estimate, tax theft has amounted to around 3 trillion rupees.

Successive governments have failed to improve tax governance, despite funding from the World Bank and other international institutions established to help reform and restructure tax systems. Instead of stopping tax evasion and increasing the number of taxpayers, the government has increased taxes on those who already pay them. This has further burdened businesses and slowed down economic activity. Less than 2% of Pakistan’s population of 220 million people file tax returns.

Fixed Tax Regime for Retailers

This year, the government proposed introducing a special fixed tax regime for retailers, through the Finance Bill 2022, whereby retailers, other than tier one and specified service providers, would pay fixed amounts of income tax, ranging from 3,000 to 10,000 Pakistani rupees, through their commercial electricity bills.

The coalition government estimated that more than 30 billion rupees of tax would be collected from retailers through these measures. Millions of retailers operate in Pakistan and successive governments, despite several attempts, have failed to bring them under the tax net. Various schemes, including fixed tax schemes, have been tried, but every time retailers have threatened strike action that would shutter businesses until the disputed tax laws were withdrawn. Consequently, the government has withdrawn every tax scheme that would have applied to small retailers.

However, this time the government, after initially postponing the proposed fixed tax levy, then decided to reduce its tax impact. Now, tax on retailers other than those falling in the tier one category is chargeable at the rate of 5% where the monthly electricity bill does not exceed 20,000 rupees, and 7.5% where the monthly bill exceeds 20,000 rupees.

Sector-Based Relief

The 2022–23 budget contains a number of measures designed to relieve various sectors of the economy. They include:

• Energy: exemptions from sales tax for the import and local supply of solar panels, to encourage the use of renewable energy;
• Agriculture: exemptions from sales tax for the supply of tractors, agricultural implements, and various seeds including wheat, rice, maize, sunflowers, canola, and rice;
• Health: exemptions from sales tax for imports or donations to charitable hospitals and local supplies, including electricity to charitable/non-profit hospitals with 50 or more beds;
• Agri-based industry: exemptions from customs duties for agricultural machinery for irrigation, drainage, harvesting/post-harvest handling and processing, greenhouse farming, plant protection equipment, and machinery, equipment and other capital goods for agri-based industries;
• Industry: reduced duties for various industrial manufacturing sectors;
• Textiles: decreased tariffs for synthetic filament yarn;
• Pharmaceuticals: exemptions from customs duties for over 30 active pharmaceutical ingredients;
• Oil: reduced minimum tax on turnover of oil marketing companies (from 0.75% to 0.5%).

Revenue Measures

The budget contains various proposals. They include:

• The rate of advance tax will be increased from 1% to 5% of the fair market value of any immovable property purchased by persons who are not active taxpayers.
• The rate of advance tax on registration of vehicles for non-filers will be increased by 200%.
• Advance tax rate on private vehicles with engine capacity of 1600cc and above will be increased.
• On the direction of the Federal Board of Revenue, gas and electricity distribution companies will discontinue the supply of gas and electricity of any person, including tier one retailers, not registered for sales tax or, in the case of notified tier one retailers, registered but not integrated with the Board’s computerized system.
• The Board has already started the integration of the point of sale system to document the retail sector. A total of 4,563 tier one retailers are now connected to the Board and a number of point of sale computerized lucky draws have been held. Prize money of 318 million Pakistani rupees has been paid out to 6,042 winners.
• The petroleum levy will be increased to 50 rupees per liter on several petroleum products, including high speed diesel oil, motor gasoline, superior kerosene oil, and light diesel oil. On locally produced/extracted liquefied petroleum gas, the levy will be increased to 30,000 rupees per metric ton.
• For the 2023 tax year and onward, the income of banking companies earned from investment in federal government securities will be taxed at 55%, 49% and 39% if the gross advances to deposit ratio is up to 40%, 40–50%, or above 50%, respectively.
• For the 2022 tax year and onward, a super tax ranging from 1% to 4% (based on graduated income slabs) will be levied on persons earning more than 150 million Pakistani rupees. The top rate of 4% applies to income exceeding 300 million rupees. However, for the tax year 2022 only, where the annual income of a person engaged wholly or partly in the business of airlines, automobiles, beverages, cement, chemicals, cigarettes and tobacco, fertilizer, iron and steel, liquefied natural gas terminal, oil marketing, oil refining, petroleum and gas exploration and production, pharmaceuticals, sugar, and textiles exceeds 300 million rupees, it will be taxed at a rate of 10%.
• For the 2023 tax year, banking companies will pay 10% super tax if their income for the year exceeds 300 million Pakistani rupees.
• For the 2022 tax year and onward, a resident person will be treated as deriving income equal to 5% of the fair market value of any capital assets situated in Pakistan on the last day of the tax year. Such income will be chargeable to tax at the rate of 20% provided certain exclusions (for example, self-owned property) do not apply. Also, where the fair market value of the capital assets in aggregate does not exceed 25 million Pakistani rupees, the tax will not be imposed.
• The whole amount of any capital gain arising on the disposal of immovable property will be subject to tax at rates ranging from 0% to 15%, depending on the length of time that the property has been held.
• For the 2023 tax year and onward, capital gains arising on the disposal of securities acquired after July 1, 2022, will be taxed at graduated rates ranging from 2.5% to 15%, depending on how long the securities were held. Gains resulting from securities acquired on or before June 30, 2022, will continue to be taxed at the flat rate of 12.5% (regardless of the holding period).
• Poverty Alleviation Tax: Tax has been imposed on higher earning persons for poverty alleviation for tax year 2022 and onward.
• Tax has been imposed on income from unutilized property above 25 million rupees, including luxury farmhouses but excluding one self-occupied house.
• Tax exemption on income payment plans invested out of pension/annuity account/plans has been withdrawn.

Pakistan’s economy is under pressure due to a current account deficit of around $10 billion and principal repayments on its external debt of around $24 billion. From April to July 2022, the rupee devalued by more than 10%. Due to the political uncertainty, demand for US dollars increased, the money markets fluctuated, and reserves decreased day by day. Inflation also rose, due to the increases in fuel and energy prices. The government is clearly in a bind; how should it meet the multiple challenges facing it, including the trade and current account deficits and inflation?

In April, the State Bank of Pakistan took some extreme measures by imposing 100% cash-margin requirements against 177 import items to minimize the gap between imports and exports, and requiring the bank’s prior approval before automobiles, mobile phones, and machinery could be imported. However, after four months, it relaxed such requirements. Currently, if the terms of payment for imports are 91 to 180 days, the cash margin requirement will be 25%. It will be 0% if the terms exceed 180 days. The cash margin requirement measures have had a positive impact on the import bill. It decreased from $7.9 billion Pakistani rupees in June 2022 to $6.1 billion in July 2022.

The International Monetary Fund ’s 23rd program for Pakistan has been approved and the first tranche of around $1.2 billion has been received. Bearing in mind the country’s foreign exchange reserves position, Pakistan needs extra support of $4 billion. A funding arrangement is being planned from different sources, including loans from friendly countries.

In view of the economic problems of developing countries such as Pakistan, effective and sustainable policy making and reform can only be done on the basis of proper data analysis. If Pakistan’s economy is not growing at the required pace, then policy makers must find out the causes and prepare a comprehensive development plan to implement sustainable growth without political interference. On the administrative front, there are various issues which need to be addressed; implementing the best policies will not work if there is weak enforcement—that is one of the biggest problems in Pakistan.

At the same time, Pakistan needs stability. Political instability ruins the process of economic development and creates bad governance, which ultimately takes over all the civil institutions, resulting in recurring financial crises.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

G.B. Sahqani is an international trade and tax consultant.

The author may be contacted at: [email protected]

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South Africa elections live results 2024: By the numbers

About 28 million people are registered to vote in national and provincial elections.

South Africa’s ruling African National Congress (ANC) is leading with more than a 40 percent share of the national vote after half of the ballots have been counted, a day after the country went to the polls for national and provincial  elections that are widely predicted to test the ANC’s 30-year rule.

The Independent Electoral Commission of South Africa (IEC) started counting votes soon after polling ended on Wednesday. The Democratic Alliance (DA), South Africa’s principal opposition party, is currently in second place.

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Here is how the top four parties are doing, according to the latest updates from the IEC.

Which are the main parties in the race?

Four of the biggest players to watch out for in this year’s elections are the ANC, the DA, uMkhonto we Sizwe (MK) and the Economic Freedom Fighters (EFF).

Previous election results

The ANC has won all national elections since the end of apartheid in 1994 when Nelson Mandela became the country’s first Black president.

In 1994, the ANC won 62.5 percent of the vote. In 1999, it won 66.4 percent. In 2004, it reached its highest levels, clinching almost 70 percent of the vote. In 2009, it won nearly 66 percent, and in 2014, it won 62 percent.

In the last election in 2019, the ANC achieved its lowest margin of victory, winning 57.5 percent of the vote.

The DA has come second in the past five elections.

Parties in current National Assembly

The lower house of parliament is currently represented by 400 members of 14 political parties, allocated proportionally based on the votes each party received in the 2019 elections.

• ANC: 230 seats (57.5 percent)
• DA: 84 seats (21 percent)
• EFF: 44 seats (11 percent)
• Inkatha Freedom Party (IFP): 14 seats (3.5 percent)

Ten other parties make up the remaining 28 seats.

How is the president elected?

South Africans do not directly vote for the president.

Instead, they elect the members of the National Assembly, who then elect the president by a simple majority – 201 or more votes determine the presidency.

If the ANC secures the majority, President Cyril Ramaphosa, 71, is likely to be re-elected as president to serve his second and final five-year term.

What if no party receives a majority?

Opinion polls suggest the governing ANC, which is hovering at about  40 percent support, may lose its majority.

If this happens, the ANC will need to make a deal with other parties to form a coalition government. The choice of coalition partner will depend on the support needed to cross the 50 percent mark.

Unless the ANC performs much worse than expected, there is a slim chance it could be completely removed from power.

When will the final results be announced?

In the last national election held on May 8, 2019, the final results were announced three days later.

However, this year, with one more ballot to count, verifying results may take longer.

The IEC says it will announce the election results on Sunday.