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Challenges and Opportunities: A Comprehensive Analysis of Pakistan’s Economy

Challenges and Opportunities A Comprehensive Analysis of Pakistan's Economy

I am a 21-year-old individual who has witnessed and heard countless discussions about Pakistan’s ongoing challenges throughout my relatively short life. 

It has become apparent to me that the same problems are repeatedly highlighted in talk shows and public discourse. 

However, what has troubled me the most is the lack of emphasis on discussing viable solutions and addressing the root causes of these issues.

Rather than dwelling on the problems, it is imperative that we shift our focus towards finding effective remedies and tackling the core issues plaguing our nation. 

It is disheartening to witness a seemingly perpetual cycle of discussions that fail to provide concrete solutions, leaving the problems unresolved and the country in a state of perpetual distress.

As a young individual with a passion for the progress and prosperity of Pakistan, I strongly believe that it is high time we move beyond mere discussion and actively engage in seeking and implementing solutions. 

By identifying the underlying causes of our challenges, we can work towards implementing sustainable measures that bring about meaningful change.

It is essential for us to foster an environment that encourages constructive dialogue, promotes innovative thinking, and fosters collaboration among diverse stakeholders. 

By doing so, we can collectively address the systemic issues hindering our progress and work towards a better future for Pakistan.

Let us embark on a profound exploration, delving deep into the core problems that have hindered Pakistan’s economic progress. 

It is essential to shed light on these challenges, for only by fully understanding them can we pave the way for meaningful solutions

What are the challenges for Pakistan’s Economy?

Pakistan’s economy faces several challenges and structural issues that need to be addressed for sustained growth and stability. 

Boom & Bust Economy 

Many of you might have heard that the Pervaiz Musharaf Era was very great. 

The economy was booming and everything was going well. That is totally a misconception. 

Historically Pakistan’s GDP grew when we got Aid from the US in the Musharaf era dollars were flowing in and like in PMLN’s era when investment for CPEC Phase-1 was coming in. 

Pakistan in every era either PTI, PMLN, or PPP has seen a boom for a short time and then suddenly Economy starts to sink. 

This is a problem of overconsumption and mismanagement of resources. Our example as a nation is just like a spoiled child.

Consumption-Based Economy 

Pakistan is a Consumption-based economy. Where imports outweigh exports, leading to a significant trade deficit. 

The desire for luxury goods and imported products surpasses the country’s capacity to afford them.

We want to buy cruisers, iPhones, and Tim Hortons. Well, that is not a problem, it’s your money you can do whatever you want but the problem is we import all of these things and we don’t export enough to cover that gap. 

In simple words, we want more than we can afford. 

Trade Deficit

Pakistan’s persistent trade deficit, where imports consistently outweigh exports, has been a major concern.

Ever wonder why we need to take loans from the IMF, WORLD BANK, etc.? Because we need to cover the gap between import and export. 

Every year we post a Current Account Deficit or CAD which is a serious issue. 

In FY22, the trade deficit was at a historic high of $48.38 billion, with imports of $80.18 billion (an average of $6.68 billion per month) and exports at $31.8 billion ($2.65 million per month).

To control that the government bans imports, inflation increases as we don’t produce much for our own needs then it eventually decreases our exports. Then the government borrows money to fill that gap. 

This situation leads to import bans, inflation, and decreased exports, ultimately resulting in increased borrowing.

Investments in Unproductive Sectors

Many of our current issues are due to unproductive or dead investments either by the government or individuals. 

One of the examples is of Pakistan’s real estate sector which has become a hub for unproductive investment and the hoarding of black money. 

This trend has contributed to a lack of productivity, wealth inequality, and a rent-seeking economy.

What it means is that everyone in Pakistan wants to get rich quickly rather than invest in productive assets to grow their savings sustainably or even invest in export-based businesses or manufacturing. 

Exchange Rate Policy

I have always been a fan of the free float of the dollar. 

When you control a currency it has consequences. 

If you fix the dollar too low then the central bank has to have that many dollars to supply but we don’t have that much capacity.

The obsession of controlling the exchange rate has resulted in a widened gap between interbank and open market rate of dollar. 

Now you have 3 prices of dollars. One is an interbank which is the official rate, an open market rate on which actually dollars is available, and then comes the black market. 

If someone from your family wants to send money from abroad to you of course they will prefer a high rate. 

So, rather than sending you remittances through the banking channel, they will send you through other means. 

Additionally, it is important to note that attempting to control the exchange rate of the national currency, such as the dollar, does not yield sustainable economic growth. 

The market mechanism naturally adjusts the rate based on the principles of supply and demand. 

It is universally acknowledged by economists that attempting to artificially control the exchange rate can have adverse long-term consequences. 

Such measures can lead to market distortions, hinder investment, and impede overall economic progress. 

Therefore, it is vital for Pakistan to adopt policies that promote a free and flexible exchange rate system, allowing the market to determine the exchange rate based on economic fundamentals.

Agricultural Productivity

Despite having a predominantly agrarian economy, Pakistan struggles with low crop yields and limited value addition.

About 85 percent of Pakistan’s cropped area is irrigated and it employs about 42.3% of the labour force but crop yields on average are still lower than elsewhere in the region and much lower than yields in developed countries.

Likewise, Pakistan is the world’s fifth largest producer of milk, but the average yield per animal is very low and very little is processed hygienically.

Although, I’m optimistic that many startups are now getting into agriculture. They will disrupt the system. Inshallah.

Obsession of control

The obsession with control is evident in various aspects of Pakistan’s economy, such as the regulation of petrol prices. 

By allowing companies to compete freely in a competitive market, they would be motivated to keep prices as low as possible in order to gain an edge over their competitors. 

This approach is exemplified in countries like the United States, where the government refrains from controlling petroleum prices. 

By avoiding excessive control, the market forces of supply and demand can determine the prices, leading to optimal outcomes.

Then the government relinquishes control and permits market forces to prevail, it creates an environment where competition thrives and businesses strive to offer the best value to consumers. 

In the case of petrol prices, when companies compete freely, they are encouraged to improve efficiency, reduce costs, and pass on the benefits to consumers through lower prices. 

This not only benefits the consumers but also stimulates economic growth and increases overall welfare.

Furthermore, by avoiding excessive control over prices, the government can actually generate higher revenues in the long run. 

As competition drives down prices, the demand for the product increases, leading to higher sales volumes. 

Consequently, the government can earn more revenue through increased tax collection and other forms of indirect revenue generation. 

This approach aligns with the principles of a market-oriented economy, where market forces are allowed to determine prices based on the interaction of supply and demand.

What are the viable solutions to Pakistan’s economic issues?

Structural Reforms

Amidst the current crisis, it is imperative for Pakistan to undertake significant economic reforms and make tough decisions. 

This challenging period can serve as an opportunity to initiate a comprehensive restructuring of the economy. 

Urgent tax reforms are needed to broaden the tax base, simplify tax structures, and enhance tax administration. 

Concurrently, liberalizing trade policies, reducing barriers, and fostering export-oriented industries can effectively address the persistent trade deficit. 

Additionally, it is crucial to tackle the energy crisis by implementing reforms that improve energy sector efficiency, reduce circular debt, and promote renewable energy sources. 

Pakistan possesses the demographic advantage and a talented youth bulge, but a mindset reset is necessary. 

It is essential to start questioning our leaders and assessing their ability to make the tough decisions needed for our country’s progress. 

Through the implementation of these vital reforms, Pakistan can establish a more resilient and sustainable economy for the future.

Import Substitution

We as a nation consumed $81 Billion of imports in FY2022. 

A model of growth that is driven by consumption and government expenditure rather than by investment and exports is at the core of Pakistan’s growth challenge. 

Encouraging competition among companies can help reduce prices and increase government revenue. 

We need to focus on promoting domestic industries, encouraging export-oriented businesses, and investing in research and development to enhance competitiveness in global markets.

Promoting IT sector

Having closely observed the Pakistan Stock Exchange (PSX) for nearly two years, I have witnessed immense potential within Pakistani companies. 

Despite challenges such as the imposition of Super Tax and inflationary pressures, many of these companies have displayed remarkable growth. 

Their performance exemplifies their world-class capabilities and resilience. Moreover, Pakistan’s IT industry holds significant importance, contributing to the country’s economic growth. 

While the official numbers of IT exports stand at $3 to $4 billion, it is important to acknowledge that there are individuals resorting to unofficial channels to transfer funds, thus underreporting the actual figures.

It is noteworthy that neighbouring countries like India and Bangladesh have made great strides in IT exports, and Pakistan too possesses the potential to excel in this sector. 

By harnessing the talent and capabilities within the country, coupled with effective policies and support, Pakistan can foster a thriving IT industry and expand its export potential.

Made in Pakistan 

The statement, “If you don’t respect yourself, no one will,” holds profound significance, particularly when it comes to the importance of manufacturing and localization. 

It is crucial for us to recognize that it is high time to alter our habits and take responsibility for our actions. 

Instead of solely relying on the government, we, as individuals and consumers, have a pivotal role to play in supporting local industries. 

By consciously choosing to buy local products and actively investing in local production, we can bring about positive change. 

This shift in consumer behaviour will not only stimulate the growth of domestic industries but also contribute to job creation, economic prosperity, and self-sufficiency.

It is through our collective efforts that we can promote a strong sense of national pride and foster a sustainable economy. 

Embracing the ethos of manufacturing and localization is not just a choice but an imperative solution for our country’s progress.

Women’s Economic Empowerment

In Pakistan, while there is a significant amount of respect shown towards women, it is often not directed in the right manner. 

It is crucial for us to extend our support to women in an economic sense. 

Considering that women make up 50% of Pakistan’s population, it is imperative to harness their potential and actively involve them in the labour force. 

Currently, the female labour force participation rate stands at 21%, whereas in Bangladesh, it is 38%.

By striving to increase the female labour force participation rate to the level of Bangladesh, Pakistan can significantly boost its GDP growth, potentially reaching 23%.

To ensure sustainable and inclusive economic growth, Pakistan must recognize the immense potential and contribution of women, provide them with equal opportunities and support their active participation in the economy. 

Moreover, embracing market principles and avoiding attempts to control currency exchange rates will foster a conducive environment for economic stability and progress.

Privatization of State-Owned Enterprises

Zombie firms like PIA, Pakistan Steel Mills, and DISCOs generate substantial losses every year. 

Privatizing these state-owned enterprises can help redirect wasted resources and generate revenue for more productive investments, such as improving public transportation.

Is Pakistan going to default?

If Pakistan continues to follow the same patterns and practices that have been prevalent throughout its history, it is inevitable that a default will occur. 

The repercussions of such an event are grave, yet many fail to grasp the magnitude of its consequences. 

Defaulting on debt obligations leads to a sharp increase in the cost of living, causing prices to skyrocket up to threefold. 

This phenomenon affects all facets of society, impacting the general population, businesses, and the overall economy.

The occurrence of default is not contingent upon the outcome of elections.

 Regardless of the political landscape, a new government will often blame its predecessor for the existing economic challenges. 

However, even if elections take place and a new government assumes power, the cycle of dependency on external financial assistance, such as approaching the International Monetary Fund (IMF), will persist. 

This repetitive cycle of seeking aid from international institutions will continue to occur unless significant structural reforms are implemented to address the root causes of Pakistan’s economic vulnerabilities.

It is crucial for Pakistan to realize the severity of the situation and proactively take measures to avert the looming default. 

This requires adopting comprehensive economic reforms that prioritize fiscal discipline, effective debt management, and the promotion of sustainable growth drivers. 

By addressing systemic weaknesses, improving governance, and fostering an environment conducive to investment and innovation, Pakistan can break free from the cycle of default and forge a path toward economic stability and prosperity. 

The alternative path, marked by recurring defaults, will only perpetuate the hardships and hinder the nation’s progress.


I firmly believe that as a nation, we possess the intellect, resilience, and resources necessary to overcome these challenges. 

It is our collective responsibility to engage in proactive discussions, prioritize problem-solving, and pave the way for a brighter and more prosperous Pakistan.

Let us come together, irrespective of our backgrounds, ideologies, or political affiliations, to chart a path towards sustainable development, economic growth, social justice, and a brighter future for all Pakistanis. 

Together, we can create a positive impact and steer our beloved country towards the path of progress and prosperity.”

Disclaimer: The perspectives expressed herein are exclusively my own and do not reflect the views of any political party or influencer. If you hold a different opinion on any matter, I invite you to engage in a respectful debate through direct messages. It is important to note that I am merely a student of economics seeking to contribute to the discourse on these subjects.
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