Historical Overview of Pakistan Economy

Analyzing Pakistan's economic policy since its independence in 1947 involves

considering various eras and key developments. Here's a brief history of
economic policies in Pakistan since 1947, era-wise:
Early Years (1947-1958):
 Challenges and Foundations: Pakistan faced economic challenges at its
inception, including the division of assets with India. The country laid the
foundation for economic policies, focusing on agriculture as the primary
sector.
Ayub Khan Era (1958-1969):
 Economic Planning: The Ayub Khan era saw the introduction of the first
Five-Year Plan in 1955, emphasizing industrialization and infrastructure
development.
 Green Revolution: The 1960s witnessed the Green Revolution,
introducing high-yield varieties of crops to boost agricultural
productivity.
Post-1971 and Nationalization (1971-1977):
 Separation of East Pakistan: After the separation of East Pakistan in 1971,
the country faced economic challenges. Nationalization of key industries
and banks occurred during Zulfikar Ali Bhutto's regime.
Zia-ul-Haq Era (1977-1988):
 Economic Liberalization: Zia-ul-Haq's regime focused on economic
liberalization, encouraging private enterprise and foreign investment.
 Islamization: The government implemented policies reflecting an Islamic
economic system.
1990s Reforms and Structural Adjustments:
 Economic Reforms: In the 1990s, successive governments introduced
economic reforms, including privatization, deregulation, and
liberalization.
 Structural Adjustment Programs: Pakistan entered into agreements with
the International Monetary Fund (IMF) for structural adjustments.
Early 2000s to 2010s:
 Economic Challenges: The early 2000s saw economic challenges,
including high inflation and fiscal deficits.
 Economic Stabilization: Periodic economic stabilization measures were
implemented, and efforts were made to attract foreign investment.
China-Pakistan Economic Corridor (CPEC) and Recent Developments:
 CPEC: Launched in 2013, CPEC is a major infrastructure project
connecting Gwadar Port to China's northwestern region, aiming to boost
economic growth and regional connectivity.
 Economic Reforms: Ongoing efforts to implement economic reforms,
address fiscal deficits, and attract foreign investment.
Post-2018:
 Economic Challenges: Pakistan continued to face economic challenges,
including a balance of payments crisis.
 IMF Programs: The government entered into agreements with the IMF
for financial assistance and implemented structural reforms.
Pakistan’s strong post-pandemic recovery came to a halt in FY23 with large
accumulated economic imbalances that resulted from the delayed withdrawal
of accommodative policy, and a series of domestic and external economic
shocks. Pressures on domestic prices, external and fiscal balances, the
exchange rate, and foreign exchange reserves mounted amid surging world
commodity prices, global monetary tightening, recent catastrophic flooding,
and domestic political uncertainty. Confidence and economic activity collapsed
due to import controls, periodic exchange rate fixing, creditworthiness
downgrades, and ballooning interest payments. Poverty is estimated to have
increased due to deteriorating wages and job quality, along with high inflation
that eroded purchasing power, particularly for the poor.

Pakistan’s economy is estimated to have contracted in FY23, after two

consecutive years of stellar growth.

Overall, real gross domestic product (GDP) is estimated to have declined by 0.6
percent in FY23 after growing by 6.1 percent in FY22 and 5.8 percent in FY21.
Floods caused heavy damage to crops and livestock, while difficulties securing
critical inputs, including fertilizers, further slowed agriculture output growth.
With 44 percent of poor workers relying on agriculture, weak agricultural
performance had significant poverty impacts. Supply chain disruptions due to
import restrictions and flood impacts, high fuel and borrowing costs, political
uncertainty, and weak demand affected industry and service sector activity,
and dampened private investment. Private consumption also shrank with
weakened labor markets and surging inflation. This likely reduced the labor
incomes of millions of workers, especially those who moved to lower-
productivity informal jobs.

Economic growth is expected to remain sluggish and downside risks to the

outlook will remain exceptionally high.

The approval of the International Monetary Fund (IMF) Stand-By Arrangement

(SBA) in July 2023 unlocked new external financing and averted a balance of
payments crisis. Even with the SBA, reserves are expected to remain low,
necessitating continued import controls and constraining economic recovery.
Real GDP growth is projected to reach only 1.7 percent in FY24 and 2.3 percent
in FY25. The agriculture sector is expected to recover on the back of higher
production of important crops, including cotton and rice. Marginal easing of
import restrictions is expected to support some recovery in the industrial
sector, particularly large-scale manufacturing. Flow-on impacts from the
strengthening agriculture and industrial sectors will support a revival in
associated services sectors including wholesale and retail trade, and transport
and storage. However, high inflation due to increasing domestic energy prices
and continued depreciation is likely to keep economic activity subdued.
Recovery in private investment and exports will be marginal in the absence of
broader reforms. With the resumption of growth, poverty expected to decline
to 37.2 percent in FY24.

The economic outlook and short-term macroeconomic stability are

predicated on the robust implementation of the SBA, continued fiscal
restraint and external financing inflows.

Financial sector instability and policy slippages due to social tensions pose
significant risks. Continued high inflation, localized insecurity, and weak growth
increase vulnerability to falling into poverty and worsen the situation of the
existing poor. More than 10 million people are currently just above the poverty
line, and at risk of becoming classified as poor if the situation deteriorates.
Without further reforms, risks will remain exceptionally high, economic activity
will remain constrained by import controls and weak confidence, while low
investment and exports will undermine medium-term growth potential.
A more robust recovery will require an ambitious medium-term reform
agenda focused on fiscal consolidation and enhancing competitiveness,
supported by strong political ownership and commitment. The reforms would
include measures to increase revenues by broadening the tax base, including
from closing exemptions and tapping increased revenue from agriculture,
retail, and property. It would also entail measures to rationalize fiscal
expenditures, such as by reducing wasteful and regressive subsidy spending,
and to restore private sector confidence through business regulatory reform
and reforms to state-owned enterprises, and to address inefficiencies and high
costs in the energy sector.