Rafi Ul Haq
In recent years, Pakistan’s economy has faced unprecedented challenges that have sparked widespread debate on whether the situation is a genuine economic crisis or merely a temporary setback. The claim that Pakistan’s economic crunch is artificially induced is supported by factors such as political instability, external debt, structural inefficiencies, poor policy implementation, strategic interests and mismanagement.
Speculative financial practices, currency manipulation, and hoarding by influential stakeholders have inflated economic distress. Vested political and elite interests often amplify crises to secure favorable loans or negotiate debt relief. The repeated cycles of economic growth and decline show not just real problems but also planned actions where certain groups benefit from economic downturns. Media and political rhetoric can exaggerate the crisis to deflect accountability and create a perception of helplessness, making the situation seem more severe than it is. While real economic challenges exist, a careful examination reveals layers of artificially induced pressures that skew the true state of the economy.
To assess the situation, one must look at key economic indicators. Pakistan’s inflation rate has surged to double digits, reaching over 27% in early 2024, significantly affecting purchasing power and increasing the cost of living for ordinary citizens. Food and energy prices are at record highs, impacting everyday expenses, while the national currency, the Pakistani rupee, continues to lose value against major international currencies. These indicators reflect not only a struggling economy but a society where citizens face financial hardships on a daily basis. Unemployment rates are also alarmingly high, especially among youth, where over 40% of the population struggles to find stable employment.
Another major contributing factor to Pakistan’s economic strain is its growing national debt. Pakistan owes billions in external loans, much of which must be repaid within strict timelines. The interest payments alone consume a large portion of the national budget, leaving limited resources for development projects and welfare programs. The heavy reliance on loans from the International Monetary Fund (IMF), China, and other international donors has created a dependency trap, where Pakistan is forced to borrow more to service existing debt. This dependency hinders economic autonomy and makes the country vulnerable to external influences, which impacts political stability and economic growth.
This crisis is further exacerbated by long-standing structural weaknesses and governance issues. Pakistan’s tax-to-GDP ratio remains one of the lowest in the world, with less than 1% of the population paying income taxes. This weak tax base reduces government revenues, leading to a heavy reliance on indirect taxes that disproportionately affect the poor. Moreover, rampant corruption, bureaucratic inefficiencies, and lack of accountability have stymied efforts to enact much-needed reforms. For decades, successive governments have been unable to overhaul critical sectors, particularly energy and agriculture, which contribute to Pakistan’s financial troubles.
The energy sector, for instance, faces a circular debt crisis, with unpaid bills amounting to billions of rupees. This inefficiency results in frequent power outages that disrupt business operations and increase production costs, further discouraging both local and foreign investment. Agriculture, which employs nearly 40% of the population, suffers from outdated practices and limited access to modern technology. As a result, Pakistan often imports essential food items despite having a largely agrarian economy.
Meanwhile, Political instability is a recurring theme in Pakistan’s economic narrative. Frequent changes in government, policy reversals, and political infighting have created an environment where long-term economic planning is nearly impossible. Each government faces immense pressure to address short-term issues rather than focusing on sustainable development. This leads to a cycle of borrowing, mismanagement, and policy stagnation. For instance, the lack of continuity in economic policies discourages foreign investment, which is crucial for economic growth. Investors seek stability, but in Pakistan, they often encounter volatility and uncertainty, which hinders economic progress.
Is There a Way Forward?
Despite the challenges, there is potential for improvement if Pakistan can implement strong, long-term reforms. The country has a young population, vast agricultural land, and a strategic location that could facilitate trade between Central Asia, China, and the Middle East. Addressing structural inefficiencies, reforming tax policies, enhancing accountability and eliminating corruption could lead to greater economic stability. However, these measures require political commitment, strategic planning, and public cooperation. On the other hands, investing in human capital, encouraging private enterprise, and promoting digitalization are areas with high growth potential. Enhancing exports by focusing on value-added goods and improving energy management can help Pakistan generate much-needed revenue. A serious focus on reducing corruption and improving transparency within government institutions would foster trust among citizens and investors alike, promote sustainable economic growth.
Writer is lecturer in Political Science at IIUI and can be reached at
rafihaqqani717@gmail.com
