Current Economic Situation of Pakistan:

Tariq Bajwa, the Governor of Pakistan’s Central bank, on 19/2/19 announced that the country’s
economy has been set on the right path with the help of friendly countries but the numbers
tells a different story.
His comments came just a day after Pakistan & KSA signed a slew of investment agreements
worth US$ 20 bn. However, as per data from the Asian Development Bank (ADB), Pakistan’s
GDP growth in the current fiscal year so far stands at 4.8% lower than even Nepal (5.4%). In
comparison, Bangladesh is growing at 7.5% & India’s GDP is at 7.6%. Moreover, Pakistan’s latest
GDP figures have slipped from 5.4% in 2017 & 5.8% in 2016 to 3.4% in 2019 & would further
decrease to 3.3% till 2022 (Source: Standard & Poor).
Inflation on the other hand, has galloped to a four year high of 9.4% from 6.4% in 2018.This is
the highest in the sub continent, it is mainly due to the fact that SBP have devalued the
currency 40% against dollar since Dec, 2016.
Then there Pakistan’s current account deficit(CAD), which have badly hit the economy during
current financial year-the 2019 forecast stands at 5%.It rose to $7.9 bn in the first half of the
current fiscal year & the CAD is likely to reach $16-18 bn by June 30, 2019 (Source: IANS).
Pakistan’s Foreign Currency Reserves have reportedly dwindled to around $8 bn, just enough to
cover about two months of imports.
A surge of imports was the main reason for the widening CAD. In FY 2017, it stood at $12.4 bn,
equal to 4% of GDP & well up from 1.7% a year earlier. The trade deficit reached $26.6 bn till 30
June 2018 as imports increased by 17.6%.
India’s recent decision to raise the custom duty on all goods imported from Pakistan to 200%
could further rock the boat which stood at $488.5 mn in 2017-18.A recent UN report, titled
“World Economic Situation & Prospects 2018” also pointed out that “Pakistan’s level of public
debt is also high close to 70% of GDP with rising sustainability concerns”. Total public debt
equaled 67.2% of GDP in FY 17, essentially unchanged from a year earlier, continuing to breach
the Fiscal Responsibility Debt Limitation Act ceiling of 60%.
The socio-economic statistics also leave a lot to be desired. “Half of Pakistan’s population is at
poverty line while 20% people are living below poverty line.

MY CONTRIBUTION AS AN ECONOMIST:
In such a horrific economic situation, how can I contribute to the economy of Pakistan as an economist
is the trickiest question!!!

As the GDP growth is decreasing YoY basis from 5.4% (2017) to 4.8% current & expectation of 3.3% till
2022.
I would use mixture of monetary & Fiscal measures to curb the financial problems. In Pakistan, there is
structural unemployment and stagflation which can’t be control through Monetary Tools and then the
increasing Current A/c Deficit.

So, as an Economist I would take following measures to contribute & to retract the dwindling economy:

 Government Expenditure:
To increase GDP growth rate, govt should increase PSDP budget portion which would
induce private investment and ultimately would increase the overall size of an
economy.
But the Government should only invest with Export oriented vision otherwise it may
create further pressure on BOT.

 Reduce Inflation:
Development expenditure will also increase induced private investment which will also
help to curb stagflation.
Development Exp Private Investment Production AS Prices
unemployment

 Reduce Poverty:
According to Michael Peter Detero, “Who can’t afford basic need goods is included in
poverty”.
ATLAS METHOD of Measuring Poverty Line= $ 2/day.
Pakistan vast population is in the Vicious Circle of Poverty (Nurse)

To break this cycle, I would contribute to suggest Unbalanced Growth Doctrine (By Hershman)
as Pakistan cant apply Balanced Growth Doctrine. Pakistan has remarkable unbalanced growth
opportunity as CPEC to increase its GDP and per capita income.
 Reduce Unemployment:
According to the Asian Development Bank (ADB), Pakistan is under structural
unemployment not frictional unemployment.
To curb such unemployment, I would contribute to economy by increasing Govt
development expenditure on Social Overhead Capital which would increase skilled
labor force, productivity of labor, investment & ultimately reduce structural
unemployment.
Development Exp Social Overhead Capital Skilled Labor Productivity
investment structural unemployment

 Current Account Deficit:

Another problem of Pakistan’s economy is the current account deficit. The
causes of Deficit in Balance of Payment (BOP) are as follows:

1. Exports & High Imports:

So, as an economist I would contribute in such a way that I would
increase PSDP budget portion but the focus of investment would be
export oriented & would impose high custom duties on irrelevant
imports.

2. Non Awareness of Comparative Advantage:

I would try to find out the comparative advantage over Pakistan’s
competitors in exports & would try to exploit those advantages.
3. Low Lack of Value Addition:
I would try to increase finished goods exports as they would fetch more
remittance since Pakistan’s 65% exports are of raw material.
4. Narrow Market Base:
I would also try to increase Pakistan’s export market base as today
Pakistan has access to only 26 countries of the world.
5. Valuation of Exchange Rate:
 According to the Marshall Lerner Condition (J-Curve), decrease in
exchange rate will initially impact negatively to Balance of Trade (BOT) &
will have positive effect eventually but J-curve will only effect positively if
Pakistan would be a technological based economy but Pakistan is an
agricultural based economy which has less worth in international market
than the technological devices.
So, I would suggest Pakistan should divert its economy towards
technological development & invention basis, beside it should devalue its
currency to make its exports cheaper in the international market.