PMS 2019 Solved Pakistan Affairs Past Papers | Explain the Economic Challenges being Faced by Pakistan?
The following question of PMS Pakistan Affairs 2019 is solved by Miss Bushra Arooj, the best Pakistan Affairs Coach, on the guided pattern of Sir Syed Kazim Ali, which he taught to his students, scoring the highest marks in compulsory subjects for years. This solved past paper question is uploaded to help aspirants understand how to crack a topic or question, how to write relevantly, what coherence is, and how to include and connect ideas, opinions, and suggestions to score the maximum.
Question Breakdown
In this question, the examiner asked about the economy of Pakistan in two sections. First, the major challenges which are currently harming the economy of Pakistan, and second, pragmatic solutions to address all these challenges. In order to secure the highest marks, one should provide a brief introduction and afterwards discuss the current scenario of the economic situation of the country. After that, all the major economic challenges and their solutions should be concentrated in the answer by the candidate.
Outline
1- Introduction
2- A bird’s eye view on the current economic situation in Pakistan
- ✓GDP growth: 2.4% in 2024
- ✓Inflation is persistently high at 23.4%, according to the WB
- ✓Debt-to-GDP ratio: 69.25% in 2024 Pakistan today
3- What are the major economic challenges Being Faced by Pakistan today?
- ✓High inflation and currency depreciation
- Case in point: According to the World Bank, Pakistan’s inflation rate surged to 29.18% in 2023 and remains high at 23.4% in 2024.
- ✓Public debt burden and declining foreign exchange reserves
- Case in point: According to The Diplomatic Insight, the debt-to-GDP ratio stands at approximately 69.25%, with debt servicing costing $24 billion in FY24.
- ✓Energy Crisis and Political instability
- Case in point: According to The World Bank, Energy shortfalls in the state contribute to $7 billion annual losses to the economy.
- ✓Unemployment and a huge brain drain
- Case in point: According to PIDE, over 3.27 million people left Pakistan between 2019 to 2024
- ✓Low industrialization and skills deficit
- Case in point: According to the World Bank report, the estimated lower-middle income poverty rate is 40.5% for FY24, with an additional 2.6 million Pakistanis falling below the poverty line from the year before.
4- What are the impacts of the economic crisis on Pakistan?
- ✓Rising poverty and inequality
- ✓Declining Foreign Direct Investments
- ✓Reduced Human development
5- What should be the solutions to cater this pandemic?
- ✓Fiscal and monetary reforms
- ✓Trade and industrial reforms
- ✓Digital transformation
- ✓Political and policy stability
- ✓Social sector investments
- ✓Climate adaptations
6- Conclusion
Answer to the Question
Introduction
In the modern globalized world, no country can achieve prosperity without a stable and self-reliant economy. Economic resilience always serves as the foundation for sustainable development, effective governance, technological progress, and the welfare of its citizens. Unfortunately, Pakistan finds itself in the throes of a severe economic crisis that threatens its socio-political fabric. Persistent political instability, over-dependence on foreign loans, energy shortages, and poor governance have pushed the economy of the country into a state of turbulence. However, the ramifications are evident in surging inflation, a widening trade deficit, declining foreign reserves, and a depreciating currency. According to the Index of Economic Freedom, Pakistan ranks 147th in 2024 and 32nd out of 39 countries in the Asia-Pacific region. Despite these daunting challenges, the state retains the potential to rebound. By implementing structural reforms, reducing dependency on imports, and strengthening industrial growth, the nation can pave the way for a brighter economic future. Addressing these crises requires immediate action and a unified vision to steer the country toward sustainable development and fiscal independence. With commitment and determination, the state can turn these crises into opportunities for growth and stability.
A bird’s eye view on the current economic situation in Pakistan
Currently, Pakistan’s economy is facing a critical phase marked by high inflation, a depreciating rupee, and declining foreign exchange reserves, creating significant financial pressure. Similarly, key sectors like industry and agriculture are struggling due to energy shortages, rising input costs, and climate-induced challenges, reducing productivity and export potential. The trade deficit remains wide, driven by high import dependence and modest export growth. While efforts like IMF-backed reforms and initiatives such as CPEC provide hope. Moreover, achieving stability requires long-term structural reforms, political stability, and focused investment in energy and industrial growth to ensure sustainable economic recovery.
What are the major economic challenges Being Faced by Pakistan today?
Unfortunately, high inflation and currency depreciation have become major economic challenges for the country, severely affecting its financial stability. Inflation, which has surged to over 29% in recent years, has drastically reduced purchasing power, making basic necessities unaffordable for many. Certainly, this persistent rise in prices is driven by factors such as soaring energy costs, global commodity price hikes, and fiscal mismanagement. Simultaneously, the Pakistani rupee has experienced significant depreciation against the US dollar, weakening by over 20% in 2023 alone. Likewise, this devaluation has increased the cost of imports, escalated external debt repayments, and fueled inflation further. The combined impact of these issues has strained households and businesses, underscoring the urgent need for robust monetary and fiscal policies to stabilize prices and strengthen the currency.
On the account, the country faces an alarming public debt burden and rapidly depleting foreign exchange reserves, posing severe challenges to its economic stability. The country’s public debt has exceeded 90% of its GDP, with significant portions allocated to debt servicing, leaving little room for development spending. Rising external debts, fueled by frequent borrowings from international lenders like the IMF, have exacerbated this crisis. At the same time, foreign exchange reserves have plunged to critical levels, barely covering a few weeks of essential imports, primarily due to a persistent trade deficit and declining remittances. Moreover, the shrinking reserves also weaken the rupee further, fueling inflation and increasing the cost of debt repayment. Addressing this requires decisive structural reforms, export diversification, and a focus on reducing non-productive expenditures to restore fiscal balance and economic resilience.
Furthermore, the state’s energy crisis and political instability continue to be interlinked obstacles undermining the country’s economic and social progress. With energy demand outpacing supply, the country faces prolonged power outages that disrupt industries, reduce productivity, and burden citizens with inflated utility costs. Additionally, a lack of investment in modernizing the energy infrastructure, dependence on costly imported fuel, and inefficiencies in distribution exacerbate the problem. According to The World Bank, energy shortfalls in the state contribute to $7 billion annual losses to the economy. This crisis hinders both small businesses and large-scale industries, pushing the economy toward stagnation. Political instability compounds the issue, as frequent changes in leadership and a lack of consensus delay critical policy decisions and reforms. Similarly, inconsistent governance discourages foreign investment in the energy sector and derails long-term strategies for renewable energy integration. Together, these crises feed into each other, creating a cycle of economic uncertainty and social unrest. To break free, Pakistan must prioritize energy sector reforms and achieve political stability, enabling sustainable economic recovery and development.
Equivalently, the country is facing a dual crisis of rising unemployment and a significant brain drain, both of which are deeply impacting its socio-economic fabric. The unemployment rate, particularly among educated youth, has surged beyond 10%, driven by limited job opportunities, declining industrial activity, and an underdeveloped private sector. Along with this, many industries have been forced to downsize due to economic instability and energy shortages, leaving thousands jobless. The public sector, historically a major employer, has also struggled to accommodate the growing workforce due to fiscal constraints. Nonetheless, this unemployment crisis is fueling a massive brain drain, as skilled professionals, especially from fields like medicine, IT, and engineering, seek better opportunities abroad. The exodus is driven by a lack of career prospects, poor working conditions, and political instability at home. Notwithstanding, this talent loss exacerbates the country’s development challenges, as the departure of skilled workers reduces innovation and hinders economic growth. Addressing these issues requires comprehensive reforms to create jobs, support entrepreneurship, and foster a conducive environment to retain talent within the country.
In the same grounds, the economic growth of the state is hindered by low industrialization and a significant skills deficit, limiting the country’s ability to compete in global markets. The industrial sector, dominated by textiles and basic manufacturing, has failed to diversify into high-value or technology-driven industries, leaving the economy vulnerable to external shocks. According to the World Bank report, the estimated lower-middle income poverty rate is 40.5% for FY24, with an additional 2.6 million Pakistanis falling below the poverty line from the year before. Simultaneously, the lack of investment in industrial infrastructure, outdated technology, and inconsistent policies further stifles growth. The energy crisis and high production costs have forced many businesses to scale back operations, reducing industrial output and job creation. Adding to this is a skills deficit, where a large portion of the workforce lacks the technical expertise and education required for modern industries. Poor vocational training programs, inadequate investment in education, and a disconnect between industry needs and academic curricula exacerbate the issue. As a result, Pakistan struggles to capitalize on its young population, missing opportunities for economic advancement. To address these challenges, the country must prioritize industrial diversification, strengthen vocational education, and align workforce skills with emerging market demands.
What are the impacts of the economic crisis on Pakistan?
Correspondingly, the economic crisis in the state has plunged millions into poverty, intensifying inequality across social and economic dimensions. With soaring inflation, the cost of basic necessities such as food, fuel, and healthcare has risen beyond the reach of a significant portion of the population. Moreover, rural communities and low-income households are the hardest hit, as they lack the financial buffers to cope with escalating prices. Additionally, unequal access to education and healthcare has widened the gap between the rich and poor, creating a more polarized society. The erosion of purchasing power and lack of job opportunities further entrench poverty, making it a formidable challenge for policymakers.
In addition to it, Foreign Direct Investment (FDI) in the country has witnessed a sharp decline due to economic instability, policy inconsistency, and governance challenges. Investors are deterred by unpredictable fiscal policies, energy shortages, and security concerns, viewing the nation as a high-risk destination for capital. So, this contraction in FDI deprives the country of essential funds needed for infrastructure development, technology transfer, and job creation. Thus, the lack of investment not only stymies industrial growth but also hampers the development of export-driven industries, exacerbating the trade deficit. Without restoring investor confidence, the state risks further isolation from global economic networks.
Moreover, the economic crisis has dealt a severe blow to human development indicators in the state, with adverse effects on education, healthcare, and overall quality of life. Budgetary constraints have led to underfunded public services, resulting in deteriorating school infrastructure, lower teacher salaries, and reduced access to quality education for millions of children. Similarly, the healthcare sector is struggling with inadequate facilities and a shortage of essential medicines, leaving vulnerable populations at greater risk. Therefore, the crisis has also forced many families to pull children out of school and redirect their limited resources toward survival, jeopardizing future human capital. Addressing these setbacks is crucial to securing a sustainable and prosperous future for the country. Furthermore, these impacts collectively highlight the far-reaching consequences of the country’s economic struggles, emphasizing the need for urgent and comprehensive reforms to break free from this cycle of hardship.
What should be the solutions to cater for this pandemic?
Addressing the country’s economic crisis requires a multifaceted approach rooted in structural reforms and sustainable practices. Along with this, fiscal and monetary reforms are imperative to curb fiscal imbalances and stabilize the economy. Additionally, expanding the tax base, minimizing tax evasion, and rationalizing public expenditures can help generate revenue while containing inflation through prudent monetary policies. Simultaneously, trade and industrial reforms should focus on diversifying exports and promoting high-value industries, enabling the country to reduce its reliance on imports. Also, empowering small and medium enterprises (SMEs) and fostering innovation will be key to enhancing industrial productivity. In parallel, digital transformation can provide a foundation for economic revival by promoting transparency, streamlining governance, and creating new job opportunities in the technology sector.
Moreover, political and policy stability is essential to rebuilding investor confidence and ensuring policy continuity. Transparent governance and bipartisan consensus on economic strategies will help overcome political hurdles. Likewise, social sector investments, particularly in education and healthcare, are crucial for developing human capital and reducing inequalities, while robust safety nets can cushion vulnerable populations. Finally, climate adaptations must be integrated into economic strategies to mitigate the impacts of natural disasters and environmental vulnerabilities. Investing in renewable energy, sustainable agriculture, and water management will not only address environmental challenges but also pave the way for long-term economic resilience.
Conclusion
Conclusively, the country’s economic crisis is a multifaceted challenge requiring immediate and sustained attention across several critical areas. Policy consistency and visionary leadership must form the backbone of reforms, ensuring fiscal discipline, monetary stability, and long-term economic planning. Similarly, the diversification of trade and industrial sectors, coupled with digital transformation, offers a pathway to boost productivity, reduce dependency on imports, and enhance global competitiveness. Equally important is fostering political and policy stability, as it is the cornerstone of investor confidence and national cohesion. Investments in the social sector and climate resilience are non-negotiable for sustainable development. Empowering human capital through education and healthcare while addressing environmental vulnerabilities will not only alleviate poverty and inequality but also secure a future of resilience and growth. The state stands at a pivotal moment where comprehensive and well-implemented strategies can transform the current crisis into an opportunity for long-term prosperity. Only through unity, commitment, and innovation can the country pave its way toward a stable and thriving economy.
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