Pakistan’s Economic Crisis: Its Issues, Repercussions, and Way Forward

Pakistan’s Economic Crisis: Its Issues, Repercussions, and Way Forward

Sara Khan, a Sir Syed Kazim Ali student, has attempted the CSS essay “Pakistan’s Economic Crisis: Its Issues, Repercussions, and Way Forward” on the given pattern, which Sir Syed Kazim Ali teaches his students. Sir Syed Kazim Ali has been Pakistan’s top English writing and CSS, PMS essay, and precis coach with the highest success rate of his students. In this article, we will discuss Pakistan Economic Crisis Issues and the essay is uploaded to help other competitive aspirants learn and practice essay writing techniques and patterns to qualify for the essay paper.

1-Introduction 

2-Economic profile of Pakistan

  • The economy of Pakistan is referred to as the 24th largest concerning the GDP
  • In the 2023 index of economic freedom, Pakistan stands at 33rd position in the Asia-pacific region
  • The agriculture sector’s share in the country’s GDP is around 22.25 per cent

3-Economic crisis in Pakistan: A critical overview 

4-Unmasking the impacts of the economic crisis on Pakistan

  • Increasing balance of payment crisis
  • Case in point: According to the World Bank, “Pakistan is facing a trade deficit, and it has had 23 arrangements with the IMF over the past few decades.” 
  • Ballooning foreign debts
  • Case in point: As per the reports of the International Monetary Fund (IMF), “External debt of Pakistan has reached 125.7 billion US dollars in March 2023.”
  • Rising political instability  
  • Case in point: 2022 political unrest in Pakistan followed by the vote of no-confidence motion

5-Unveiling the primary reasons leading to the economic crisis in Pakistan 

  • Excessive imports with less exports
  • Case in point: During the current fiscal year 2022-2023, Pakistan’s imports have shown an increase of 2.38 per cent compared to last year’s corresponding period.
  • Lack of human capital and resource
  • Case in point: According to the World Bank, “Pakistan’s Human Capital Index (HCI) value of 0.41 is low in absolute terms.”
  • Absence of the efficient governance system
  • Case in point: Corruption, the implementation of unfair policies, and poor economic growth are examples of bad governance in the country.

6-Empirical measures required to tackle the issue of economic crisis for good in Pakistan

  • By reforming energy-mix to improve industrial growth and exports
  • Case in point: Currently, Pakistan has a 70% reliance on coal and oil, as per the Ministry of Finance; hence, a sustainable and affordable energy supply is required.
  • By building human capital and training the young labour force
  • Case in point: As per the World Bank, “China, at all the levels of government, currently spends about 2.5% of its GDP on investment in schooling.”
  • By upgrading the governance system and filling the loopholes
  • Case in point: South Korea, Switzerland, and Denmark have the best governance system in the whole world, according to the World Bank statistics. 

7-Critical analysis 

8-Conclusion

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A sustainable economy and a robust international standing are the top-notch bullets in a country’s wish list. Nonetheless, a crisis can occur if a government fails to focus on these on a priority basis, leaving the country with a few hopes to upraise. As a developing country, Pakistan has inundated itself with severe crises, and the economic crisis is the major one. The country has faced multiple economic ups and downs since its inception. Now, its economy has been crippled; the World Bank report in this regard says that the economy of Pakistan is expected to grow only by 0.4 per cent in the current fiscal year. Talking about the impacts of the economic crisis on the country, ballooning foreign debts, and balance of payment crisis are the considerable ones. Moreover, political instability is another repercussion for which the country’s infrastructure can fall to the ground. In addition, excessive imports than exports, ineffective economic policies, and bad governance are the reasons that can prove to be backbreaking for the country’s economy. However, adopting empirical measures, such as increasing exports, ensuring the implementation of coherent and effective economic policies, and filling the loopholes in the governance system may help the country shake off the difficulty. The essay sheds light on the impacts of the economic crisis on Pakistan, its reasons, and suggestions to overcome them. 

     Overviewing the country’s economic profile, the economy of Pakistan, a developing and struggling economy, is the 24th largest concerning the GDP. In the 2023 index of economic freedom, Pakistan ranks 33rd out of 39 countries in the Asia-Pacific region, which shows its overall score is below the world and regional averages. Being an agrarian economy, the agriculture sector, the central pillar of the country’s economy, shares around 22.25% of the country’s GDP. Besides, the manufacturing sector includes the largest and most significant textile industry – petroleum and pharmaceuticals. Moreover, the government has imported products higher than the country’s exports. As per the World Bank, two thousand seven hundred sixty-one products are exported to 199 countries, and 4,011 products are imported from 211 countries. 

      Looking at the current economic crisis in Pakistan is crucial. At present, Pakistan’s economy is full of upheavals, as the country has faced challenges in meeting its goal of sustainable growth. Specifically, after the COVID-19 pandemic, things have gotten worse, and the country’s economic growth is estimated to shrink in the current fiscal year 2023. As per the World Bank, The actual gross domestic product (GDP) is deemed to have declined by 0.6 per cent in the recent year. Moreover, the balance of payment crisis has added fuel to the fire, and the country still lags in meeting its goal of a structured economy. In summary, if the government of Pakistan focuses on overcoming the existing and prevailing issues in its economic infrastructure, the situation can be changed, and the country can touch the sky with an efficient and progressive economy. 

      Jumping on the impacts of Pakistan’s economic plight, the balance of payment crisis holds the first position. As the country faces a trade deficit, it has had 23 arrangements with the IMF over the past few decades, per the International Monetary Fund (IMF) data. The current program with the lender was agreed to in 2019 when the country faced another balance-of-payment crisis. Therefore, the balance of payment crisis has proven to be the country’s worst consequence due to the economic catastrophe.  

      Second, foreign debt also results from the economic downturn in the country. Various factors are under consideration, such as internal and circular debts. The country’s government is submerged in circular debts, unable to pay the money to Independent Power Producers (IPPs). Further, with a few reserves, the country borrows money from International Organizations, leaving it in a debt crisis. As per the reports of the International Monetary Fund (IMF), the External debt of Pakistan has reached 125.7 billion US dollars in March 2023. The existing debt would rise if the situation continues, making the country dance to the tune of foreign donors. Moreover, there is a chance the country may default, leading to severe consequences. Therefore, ballooning foreign debts is another primary outcome of the economic crisis. 

      Third, the economic crisis brings about political instability in the country. Political slope can worsen the situation, weakening investors’ confidence in the country. Recently, Pakistan has been confronted with a series of political crisis. In 2022, political unrest followed by the vote of no-confidence motion against the then-Prime Minister was also the result of economic instability in the country. Moreover, it shortens the horizons of policymakers, resulting in short-term policies or frequent switches of policies. Due to this, the country faces a negative effect on its overall performance. In short, the economic slope can lead the country towards continuous downturns in its political regimes. 

      Turning to the reasons that have proved a stop signal for the country’s economy, low export is the major problem. The country’s imports are way higher than its exports. To illustrate, during the current fiscal year 2022-2023, Pakistan’s imports have shown an increase of 2.38 per cent compared to last year. Moreover, the country depends on imported goods due to the increased popular demand. Therefore, having less domestic production and high imports are the problems that impede the country’s economy. 

      Next, the lack of human resources and capital is another hurdle to sustainable economic growth. It has been the issue since the beginning, as the country has failed to produce creative human capital, cognitive abilities, and critical thinking. The World Bank indicates that Pakistan’s Human Capital Index (HCI) value is 0.41, lower than the South Asia average of 0.48. Moreover, the country’s human capital challenges are worse, with over 20 million school-age children out of school, low empowerment of women, and high levels of child malnutrition. The country would face severe consequences if it could not meet human capital requirements. Hence, the lack of human capital is another reason for the withering of the country’s economy. 

      In addition, ineffective or harmful governance is indeed an important reason. Undoubtedly, governance is an indispensable foundation of a country’s economic standing; however, the country faces awful implications if left unaddressed. The same is valid with Pakistan, as its governance system has repeatedly failed to prove its might. To elaborate, implementing unfair policies, corruption, and poor economic growth are examples of bad governance in the country. The economy will not mushroom effectively unless the government fixes the governance issue. In conclusion, bad governance destroys the country’s economy more than anything else. 

      However, several pragmatic measures are required to curb the menace, which are discussed here. First, reforming the country’s energy mix is a dire need of the time; it would help improve industrial growth. Currently, Pakistan has 70% reliance on coal and oil, as per the statistics given by the Ministry of Finance. Therefore, a sustainable, affordable, and uninterrupted energy supply is required to improve the industrial sector.Tax collection net and exports would also increase by improving the industrial sector and growth. In short, these steps may help the country deal with the menace of the economic crisis. 

      Furthermore, the country can reach the zenith of economic growth by building human capital and training a young labour force. For instance, China’s ability to prepare, captivate, and retain human capital is an eminent example. The World Bank indicates that China, at all levels of government, currently spends about 2.5% of its GDP on investment in schooling. Similarly, Pakistan should devote the maximum of its GDP to human resource development and provide training to its youth. This way, the country may reach the heights of economic development and sustainability. 

      Last but not least, it is the need of the hour for the country to focus on its governance system, realize the loopholes persisting in it, and fill these loopholes on time. There are meaningful examples of countries that keep their governance system stable. For example, the World Bank specifies that South Korea, Switzerland, and Denmark have the best governance system in the whole world. Owing to this, these countries have stable economies. Likewise, Pakistan needs to take steps to ensure policy implementation. Thus, it would help the country’s economy to grow and flourish.

      To sum up, the meticulous analysis reveals that the situation cannot be controlled until or unless Pakistan takes the economic plight seriously. The country is in trouble as it has been confronted with numerous problems and challenges, which are the reasons behind the economic downturn or which arise out of the crisis. However, if the country takes effective measures and ensures its implementation, it can face the issue of economic declivity and even deal with it with flying colours.

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