Economic Challenges in Pakistan

“ Without economic strength, a nation has no political strength.”

(Quaid-e-Azam Muhammad Ali Jinnah)

Introduction
Pakistan is facing various economic challenges, and the situation is very serious.
People are looking for solutions to these problems. Once again, the country is turning to
the International Monetary Fund (IMF) for help.
Fact: Foreign reserves dropped to less than $4 billion in 2023.

Some of the factors causing these issues are listed below.

1.​ Inflation
Overview: Inflation is when the prices of goods and services go up, which reduces
people's ability to buy things. In Pakistan, inflation has been caused by several factors,
including outside events, government policies, and changes in the value of the currency.
Current Scenario: In recent years, Pakistan has faced double-digit inflation,
significantly affecting food prices, energy costs, and overall living expenses. The
Consumer Price Index (CPI) has shown alarming increases, particularly in essential
items.
Fact: Inflation in 2023 reached over 29%.

Impact:
Purchasing Power: When prices go up, families have less money to spend, so they
buy fewer basic things.
Poverty Rates: Increased prices can push more people into poverty, leading to health
issues. Approximately 21.9% of the population lives below the poverty line.
Uncertainty: High inflation causes uncertainty in the economy, making it difficult for
businesses to plan investments and for people to decide how to spend their money.

2.​ Debt Burden(80% of GDP)

Overview: Pakistan's debt has increased because the government spends more than it
earns. Experts are worried about how much debt the country has compared to its
income.
Current Scenario: In 2023, Pakistan's public debt became more than 80% of its GDP.
A big part of this debt is owed to international lenders, such as the IMF and other global
organizations.
Fact: The external debt is over $125 billion (2024).
Impact:
Debt Servicing: A large part of the national budget is used to pay back debt, leaving
less money for development projects, health care, and education.
Investor Confidence: High debt can discourage foreign investment because investors
might think the economy is unstable.

3.​ Trade Deficit($35 Billion)

Overview: A trade deficit occurs when a country’s imports exceed its exports. Pakistan
has consistently faced a trade deficit, which is also an Economic Challenge in Pakistan.
Current Scenario: In recent years, the trade deficit has exceeded due to increased
global prices and insufficient export growth.
Fact: In 2023, the trade deficit was over $35 billion.

Impact:
Foreign Exchange Reserves: A trade deficit reduces foreign exchange reserves,
which puts pressure on the value of the Pakistani Rupee.
Currency: A weakened currency increases the cost of imports, contributing to inflation
and reducing the purchasing power of consumers.

4.​ Energy Crisis

Overview: Pakistan is facing big energy shortages, which affect factories and daily life.
The energy system is old, and the country depends on imported fuel.
Current Scenario: Regular load shedding and energy shortages have become
common, particularly during peak demand seasons.

Impact:
Industrial Growth: Energy shortages limit the capacity of industries to operate at full
potential, slowing down economic growth and job creation.
Public Dissatisfaction: Frequent power cuts make people unhappy and can lead to
social problems.
Investment Deterrent: An unstable energy supply discourages both local and foreign
investors because businesses prefer stable environments to operate in.

5.​ Unemployment and Underemployment(6.8%):

Overview: Pakistan has high unemployment, especially among young people. Many
are working in low-paying or informal jobs that do not utilize their skills effectively.
Current Scenario: The unemployment rate in Pakistan is around 6.8%, with youth
unemployment.

Impact:
Social Issues: High unemployment can lead to increased crime rates, social problems,
and make young people feel hopeless.
Economic Growth: Underemployment means the economy is not working at its best,
which results in lower productivity and slower growth.
Skill Mismatch: When education doesn't match the jobs available, it makes the
unemployment problem worse. Many graduates are unable to find jobs that match their
qualifications.

6.​ Political Instability

Overview: Political instability in Pakistan has been a significant hurdle to economic
development. The country has gone through military coups, changes in government,
and ongoing political conflicts.
Current Scenario: Political tensions, protests, and changing policies can create an
unstable environment for businesses and investors.
Fact: Political unrest in 2022-2023 slowed economic activities.

Impact:
Policy Inconsistency: Frequent government changes lead to unstable economic
policies, making it hard for businesses to plan ahead.
Public Confidence: Political instability can reduce people's trust in government
institutions, which affects the overall mood of the economy.

7.​ Corruption and Governance Issues

Overview: Corruption is a significant barrier to economic growth in Pakistan, affecting
various sectors and weakening governance. (Corruption remains a significant challenge
for Pakistan, with the country ranking 140 out of 180 countries in Transparency
International's Corruption Perceptions Index 2022.)
Current Scenario: Corruption is still a big problem in government services. This hurts
people's access to basic needs like healthcare, education, and roads.

Impact:
Inefficiency: Corruption wastes resources and makes public services ineffective,
slowing down progress and development.
Investor Distrust: A corrupt environment discourages both local and foreign
investment, As businesses look for a fair and transparent system of rules and
regulations.

8.​ Agricultural Dependence

Overview: Farming is an important part of Pakistan's economy and provides jobs to
many people. However, the sector faces challenges such as outdated farming practices
and climate change.
Current Scenario: Agricultural productivity has stopped, and issues such as water
scarcity and soil damage threaten food security.

Impact:
Food Security: Pakistan relies heavily on farming, but changing weather conditions can
hurt crop growth. This means food prices can go up and food might be harder to find.
Economic Diversification: Pakistan's economy relies too much on farming, making it
hard to develop other industries and create more jobs.
Rural Poverty: The problems in farming lead to poverty in rural areas, as many farmers
don't have access to modern technology or loans.

9.​ Limited Tax Base

Overview: Pakistan's tax system has some major issues. Not enough people and
businesses are paying taxes, A large part of the economy operates in the informal
sector, which is not taxed.
Current Scenario: Tax collection in Pakistan is often inefficient, and many people and
businesses avoid paying taxes, which reduces government revenue.
Fact: Only 1% of the population pays income tax.

Impact:
Public Services: Limited tax revenue restricts government spending on essential
services such as health, education, and infrastructure.
Development Projects: The failure to generate enough revenue hinders development
projects and social programs.
Dependence on Borrowing:The government doesn't collect enough taxes, so it
borrows money from other countries. This creates a cycle where Pakistan owes more
and more money.
 10.​Foreign Investment
Overview: Pakistan has faced difficulties in attracting foreign investment, even though it
has a lot of potential. Problems like safety concerns, complicated rules, and poor
infrastructure discourage investors.
Current Scenario: Although projects like the China-Pakistan Economic Corridor
(CPEC) have brought in some investment, overall foreign investment in Pakistan is still
low.

Impact:
Economic Growth: Limited foreign investment restricts technology transfer, job
creation, and overall economic growth.
Infrastructure Development: Lack of investment in infrastructure slows down
economic growth and makes it harder to connect different areas.
Market Competitiveness:Without investment from other countries, Pakistani
businesses may find it hard to compete globally. This can hurt the country's ability to
increase exports and expand into new markets.

Solutions
Short-term Solutions:​
1.​ Increase Tax Revenue
2.​ Improve Energy Supply
3.​ Enhance Export Competitiveness
4.​ Encourage Foreign Investment
5.​ Reduce Corruption

Long-term Solutions:
1.​ Diversify Economy
2.​ Invest in Education and Healthcare
3.​ Promote Private Sector Growth
4.​ Improve Governance and Institutions
5.​ Increase Transparency and Accountability

Government Initiatives:
1.​ China-Pakistan Economic Corridor (CPEC)
2.​ National Action Plan for Energy
3.​ Tax Reforms
4.​ Investment Promotion Policies
5.​ Social Protection Programs
Key Economic Indicators:
1.​ GDP Growth Rate: 3-4%
2.​ Inflation Rate: 10-12%
3.​ Unemployment Rate: 6-8%
4.​ Poverty Rate: 24%
5.​ Current Account Deficit: $2-3 billion

Conclusion
Pakistan faces significant economic challenges, including a heavy reliance on
agriculture, low tax revenues, and a lack of foreign investment. These issues hinder
economic growth, increase poverty, and limit the country's ability to compete globally.
Pakistan needs to address these economic challenges through a combination of
short-term and long-term solutions, government initiatives, and private sector
participation.

—-

SCO
"The SCO is a vital platform for Pakistan to enhance its economic and security
cooperation with other member states." - Imran Khan, Former Prime Minister of
Pakistan

"The SCO has become a significant platform for promoting peace, stability, and
prosperity in the region." - Vladimir Putin, President of Russia

The Shanghai Cooperation Organization (SCO) is a political, economic, and security

organization, founded in 2001 by China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan,
and Uzbekistan. Its primary goals are to promote regional stability, security cooperation,
economic development, and counter-terrorism efforts in the region.

Here are the details about the Shanghai Cooperation Organization (SCO) languages
and headquarters:
Official Languages:
1. Russian
2. Chinese
Working Languages:
English
Headquarters:
Location: Beijing, China
Background of the SCO:
The SCO initially emerged from the “Shanghai Five,” a group formed in 1996,
comprising China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan. Uzbekistan joined in
2001, when the SCO was formally established.

The Organization’s primary objectives are:

1.​ Enhancing political trust among member states.
2.​ Promoting regional peace and stability.
3.​ Facilitating cooperation in counterterrorism and combating extremism.
4.​ Expanding economic ties and development.
In 2017, India and Pakistan were admitted as full members of the SCO, marking a
significant expansion of the organization.

Pakistan’s Role and Interests in the SCO

1.​ Economic Cooperation and Connectivity
The SCO is not just a security alliance but also a mechanism for economic cooperation.
For Pakistan, improving trade and economic ties with the region is critical to its
development.

Economic Integration: The SCO provides Pakistan with an opportunity to enhance

economic and trade relations with Central Asian countries, China, and Russia.
Pakistan’s strategic location, especially with the China-Pakistan Economic Corridor
(CPEC), makes it a key player in the Belt and Road Initiative (BRI). This opens doors for
better access to energy resources, trade routes, and markets in Central Asia.

Trade and Infrastructure Development: Through the SCO, Pakistan seeks to

strengthen its infrastructure and increase regional trade connectivity. The development
of road, rail, and energy networks through initiatives like CPEC and its alignment with
the BRI can transform Pakistan into a regional hub for trade. Additionally, the SCO
promotes initiatives like the Silk Road Economic Belt, which aligns with Pakistan’s
long-term goal of becoming a trade bridge between East Asia, Central Asia, and the
Middle East.