Presently,
Pakistan is at a turning point in its economic history; how it resolves this
current crisis will shape the future of its economy. Years of mismanaged
economic and regulatory policies, overreliance on borrowing/debt, and weak
implementation have caused Pakistan's economy to enter this crisis. According
to the World Bank "Reclaiming Momentum Towards Prosperity" report, it
is estimated that the Poverty rate will rise from 21.9% in 2018-19 and to 25.3%
in 2024-25 — an increase of close to 13 million individuals living below the
international poverty line. The three leading contributing factors to this
increase include COVID-19, the impact of the unprecedented floods in 2022, and
economic instability.
Pakistan's
cumulative foreign debt stood at $134.5 billion by the end of September 2025,
which is an increase of $3.5 billion in comparison to the external debt
reported in the prior article of $131 billion. Pakistan's external debt service
target for the 2025 fiscal year was $26 billion.
On
the subject of inflation, the Pakistan Bureau of Statistics (PBS) reported that
inflation decreased from its peak of 38% in May 2023 to 0.3% in April 2025. In
addition, the latest inflation figure has increased to 7.3% as of March 2026,
which is the highest since August 2024 and is outside of the SBP’s targeted
inflation range of 5%-7%. Rising transportation costs, as well as increased
electricity and gas prices, have contributed to this increase.
The
employment situation is concerning as well. Per the World Bank, more than 85%
of jobs held in Pakistan are "informal," meaning that they do not
have any formal employer-employee relationship (for example, contract or trade
union). Women and youth comprise a significant portion of the excluded
workforce. The good news about remittances is that according to recent data
from the State Bank of Pakistan, remittances set an all-time high of $38.3
billion (about $10.5 billion higher than the previous year) from fiscal year
2024-25, representing a substantial 27% increase from $30.25 billion the
previous fiscal year. This amount exceeds all of Pakistan's exports combined
for the entire last year and is now the most significant source of foreign
exchange for the country.
The
International Monetary Fund reports that the value of the Pakistan economy will
have increased by 3.1% by 2025, making it impossible to provide enough jobs for
the 255 million people living in Pakistan because no more than 3.1% should be
generated from GDP growth. According to the World Bank, since there has been slow
and unequal structural transformation in Pakistan, it has prevented job
creation, creating new industries, and increasing productivity.
The
International Monetary Fund (IMF) has successfully negotiated a staff-level
agreement with Pakistan as of March 2026 to conduct the third review of the
US$7 billion Extended Fund Facility (EFF). A total of US$1.2 billion will be
disbursed under this agreement. Pakistan has reached its highest current
account surplus in 22 years due to combined remittances and the IME's Extended
Fund Facility (EFF) programme; thus, the country has experienced a stable
exchange rate, improved foreign reserves and an improved fiscal balance.
Per
the World Bank, Pakistan's history of weak policymaking and institutions has
limited and consistently limited its potential for economic growth. While
periods of economic growth occurred, they were extremely short-lived and
unstable; this is largely attributable to their reliance on unsustainable debt
levels or external sources of funding. Unless the tax base (which generates
revenue for the government) is expanded; there are substantial increases in
exports in real terms; and corruption is eliminated, there is little
opportunity for Pakistan's economic success to be sustained over time.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the position of ICEP.
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