Leadership and Democracy LabWestern Social Science

Economic Issues in Pakistan

Contributor: Eunseo Namkung

Pakistan is one of the poorest and least developed countries in Asia.[1] It is the 38th largest economy in the world in terms of nominal GDP and 132nd in terms of nominal GDP per capita of $1,550.[2] While it is one of the Next Eleven countries, noted to have potential to become one of the largest economies in the world, war and social instability has stunted the country’s ability to develop.[3] Moreover, its relatively low unemployment rate fails to represent the large informal economy of the country.[4] Furthermore, while GDP has been growing since 2005 at 5% on average yearly, it is not enough to keep up with population growth.[5]

Agriculture accounts for over 20% of output and employs over 40% of its 190 million population.[6] Poor weather conditions have dried up this industry in addition to its primary export industries consisting of mostly commodities such as textiles and apparel, food processing, construction materials, and pharmaceuticals. Dependency on such industries has left Pakistan vulnerable to world demand and behind in development compared to countries in the region, calling for the need to strengthen value-added industries in order to build a sustainable economy. Moreover, Pakistan’s high trade deficit of $17.7 billion USD is an indication of outflow of domestic currency to foreign markets.

The Pakistani rupee has depreciated more than 40% since 2007 due to political and social instability.[7] However, it remained relatively stable against the US dollar in 2014-15, showing signs of moderate improvement moving forward. Improved fiscal management and other governance reforms have helped upgrade Pakistan’s credit rating. [8]This, in combination with lower global interest rates have enabled Pakistan to repay and reschedule its debts, easing the country’s ability to invest in export industries to turn around its high merchandise-trade deficit.

Overall, the Pakistani economy is showing signs of stabilizing after its setback from the 2008 financial crisis but remains a low-income, low-growth nation.[9] Cheap oil prices in conjunction with its structural reform program has helped lower inflation, albeit it remains quite high at 7.16%.[10] This improved industrial performance is expected to compensate setbacks in the agriculture sector and overall weak export performance. After years of inward-looking policies, Pakistan has become increasingly open to trade, decreasing tariffs, guaranteeing remittance of profits, and ensuring special tax concessions to certain local industries.[11] Most notably, China and Pakistan have partnered for the “China-Pakistan Economy Corridor”, a $46 billion program intended to upgrade Pakistani infrastructure and deepen economic links with China.[12] Situated at the crossroads of Central Asia, South Asia, China, and the Middle East, Pakistan has access to diverse resources, development potential, and untapped potential for growth.[13]

[1] http://www.tradingeconomics.com/pakistan/gdp-growth

[2] http://www.bloomberg.com/news/articles/2012-04-05/the-secret-strength-of-pakistans-economy

[3] http://www.bloomberg.com/news/articles/2012-08-07/goldman-sachs-s-mist-topping-brics-as-smaller-markets-outperform

[4] http://www.bloomberg.com/news/articles/2012-04-05/the-secret-strength-of-pakistans-economy

[5] http://www.tradingeconomics.com/pakistan/gdp-growth

[6] http://globaledge.msu.edu/countries/pakistan/economy

[7] https://www.cia.gov/library/publications/the-world-factbook/geos/pk.html

[8] http://www.worldbank.org/en/country/pakistan/overview

[9] http://country-facts.findthedata.com/l/182/Pakistan

[10] http://www.worldbank.org/en/country/pakistan/overview

[11] http://www.encyclopedia.com/places/asia/pakistan-and-bangladesh-political-geography/pakistan

[12] https://www.cia.gov/library/publications/the-world-factbook/geos/pk.html

[13] http://www.heritage.org/index/country/pakistan