Economic Conditions of Pakistan
1. Introduction
The economy of Pakistan is
currently navigating a highly challenging environment, marked by structural
vulnerabilities, macro-economic stabilization efforts, external pressures, and
significant reform imperatives. These lecture notes aim to provide an overview
of the current economic conditions, highlight key sectors and indicators,
identify driving forces and constraints, and project possible future pathways.
Examples, data and context are drawn from the latest available information to
make this relevant for your students.
2. Key Economic Indicators
& Current Status
2.1 Growth & Output
- Pakistan’s
gross domestic product (GDP) in current US$ is around US$ 373 billion
(2024 estimate). (World Bank Open Data)
- For
the fiscal year 2024-25 the economy’s growth rate is reported at 2.7%,
missing the government target of 3.6%. (Business
Recorder)
- The
previous year growth was ~2.5%. (Reuters)
- The
agriculture sector grew only ~0.56% in FY25, industry ~4.77%, services
~2.91%. (Business
Recorder)
2.2 Inflation, Interest Rates
& Currency
- Inflation
has been historically high. For example, Pakistan faced a severe inflation
surge during the 2022-24 period. (Wikipedia)
- More
recently, stabilisation signs: for example inflation fell sharply to a low
level in April 2025 (of ~0.3% in that month) according to government
highlights. (Finance
Division)
- The
policy/interest rate: as of some recent data the key rate is ~11%. (Trading Economics)
2.3 External Sector & Debt
- Pakistan
has a history of balance of payments tensions, large external debt, weak
reserves. (Atlantic Council)
- According
to a key update: “Pakistan’s economy continues to stabilize … current
account and primary fiscal surpluses achieved”. (worldbank.org)
- Government
debt to GDP — e.g., one statistic shows ~80% of GDP. (Trading Economics)
2.4 Sectoral Composition
- Agriculture
remains important—both for employment and food security—but growth is
weak.
- Industry
and manufacturing face constraints of input cost, energy, investment.
- Services
account for a large share of GDP but face their own structural issues.
2.5 Other Indicators
- Unemployment
~5.5% (though the informal sector is large). (Trading Economics)
- Remittances
are important (accounting for a non-trivial % of GDP) providing foreign
exchange. (World Bank Open Data)
- Poverty
reduction gains have slowed or reversed, vulnerability remains high. For
example a recent Reuters report says poverty rose again to 25% by 2024. (Reuters)
3. Driving Forces &
Challenges
3.1 Driving Forces /
Opportunities
- Demographic:
Pakistan has a large young population, which is a potential demographic
dividend if harnessed with skills, education and employment.
- Natural
resources & agriculture: Good potential in agriculture,
agri-processing, value-added production.
- Strategic
location: For trade, connectivity (e.g., links with China via
China–Pakistan Economic Corridor (CPEC), Middle East, Central Asia.
- Services/IT:
Growth potential in IT, digital economy, export services. For example one
article noted “goods exports have risen 7.1 % and the IT sector grown 28 %
year-on-year”. (World
Economic Forum)
3.2 Major Challenges /
Constraints
- Macro-economic
instability: High public debt, recurring external financing needs, large
interest burden. (Atlantic Council)
- Structural
weaknesses: Low productivity, weak institutions, large informal economy,
under-investment. (Atlantic Council)
- External
shocks & vulnerability: Dependence on commodity imports (fuel, food),
adverse weather/climate events (e.g., floods in 2022) which affect
agriculture and infrastructure. (Wikipedia)
- Energy
and infrastructure bottlenecks: Energy shortages, high input-costs hamper
industry.
- Governance,
tax collection & fiscal policy: Tax base is narrow; reforms are needed
to mobilise revenue.
- Inflation
& cost of living: High inflation erodes living standards, particularly
for the poor.
- Current
account / foreign exchange reserve risk remains if reforms stall or
exports/FDI do not pick up.
Example: The 2022 floods
devastated large swathes of agriculture and infrastructure, exacerbating the
economic stress in Pakistan. (arXiv)
4. Sectoral Highlights &
Examples
4.1 Agriculture
- Growth
was very low (~0.56% in FY25) despite being a large employer. (Business
Recorder)
- Example:
Adverse weather, pest infestations and floods have impacted harvests,
delaying crop sowing and reducing output. (Remote sensing assessment shows
major crop damage in Sindh). (arXiv)
- High
potential exists for value-addition (agro-processing) and boosting exports
of agricultural products.
4.2 Industry / Manufacturing
- Large-Scale
Manufacturing (LSM) contracted by 1.5% during FY25 amid high costs &
supply constraints. (Business
Recorder)
- Industry
faces energy shortages, high input costs (fuel, gas, electricity),
currency depreciation elevating import costs of raw materials.
- Example:
The power sector, despite installed capacity growth, still struggles with
efficient utilisation and high cost structure. (Wikipedia)
4.3 Services & IT / Exports
- Services
growth in FY25 was modest (~2.91%). (Business
Recorder)
- However,
exports of goods and services are gaining attention; IT export growth has
been highlighted in recent commentary. (World
Economic Forum)
- Remittances
are a strong component of external inflows (~9.4% of GDP). (World Bank Open Data)
4.4 External Sector &
Finance
- Current
account: Improvements seen — for example, a current-account surplus of US$
1.9 billion in July-April period of the fiscal year. (Reuters)
- Foreign
direct investment (FDI) remains low as a percent of GDP, showing investor
confidence still needs strengthening. (World Bank Open Data)
- Example:
The country is working under a program with the International Monetary
Fund (IMF) to stabilise reserves, reduce external vulnerability. (IMF)
5. Recent Reforms & Policy
Responses
- The
government has targeted revenue mobilisation, tax-collection expansion and
reducing fiscal/Rupee imbalances.
- Under
the IMF programme, structural reforms include phasing out preferential
investment incentives, improving public sector efficiency. (Financial
Times)
- Some
stabilisation gains: Inflation easing, interest rates gradually lowering,
current account strengthening. For example: “Pakistan’s economy continues
to stabilise … real GDP growth at 2.7 % … recovery driven by subdued
inflation, lower interest rates, recovering business confidence.” (worldbank.org)
- A new
multi-year partnership with the World Bank: a 10-year lending package
(~US$ 20 billion) to support reform, energy sector, education, climate
resilience. (AP
News)
6. Future Outlook: Scenarios
& Implications
6.1 Growth Forecasts
- According
to the IMF, projected real GDP growth ~2.7% for FY25. (IMF)
- Some
optimism: The government projects 4.2% for next fiscal year. (Business
Recorder)
- Longer-term
medium term growth (if reforms succeed) could reach higher levels (~5-6%).
(Reuters)
6.2 What Needs to Happen for
Better Outcomes
- Broadening
the tax base & raising revenue for public investment and debt
servicing.
- Improving
productivity in agriculture & industry: adopting modern farming,
agro-processing, upgrading manufacturing.
- Enhancing
the business climate: encourage FDI, streamline regulation, improve
governance.
- Addressing
energy & infrastructure bottlenecks: reliable power, logistics,
connectivity.
- Investing
in human capital: education, skills, especially for youth and for
industries of future (like IT, digital).
- Managing
external vulnerabilities: diversifying export basket, building reserves,
prudent debt management.
- Focusing
on inclusive growth: reducing poverty, supporting vulnerable groups,
closing gender gaps.
6.3 Risks & Uncertainties
- Global
external shocks: commodity price spikes, financial tightening,
geopolitical tension (Pakistan is in a sensitive region).
- Domestic
political instability: policy continuity and governance matter for
reforms.
- Climate
change & natural disasters: e.g., floods, droughts risk undermining
agriculture and infrastructure.
- Weak
structural reforms: Without them, stabilisation may not translate into
robust growth.
6.4 Example Pathways
- Baseline
scenario: Growth remains modest (2-3 %), stabilisation takes root but
structural change slow. Inflation controlled, but employment and
productivity growth limited.
- Optimistic
scenario: With strong reforms, investment, human-capital uplift, growth
climbs towards 4-5 + %, exports and IT grow significantly, poverty falls.
- Pessimistic
scenario: Reforms stall, external shock hits, growth stagnates or
declines, debt burdens increase, living-standards deteriorate.
7. Implications for Students
& Society
- For
students (including those studying economics, business, entrepreneurship):
opportunities in sectors like technology services, digital economy,
agro-processing, start-ups arise if the environment improves.
- For
society: The economic condition influences employment, migration (e.g.
young people looking for jobs), inflation affects cost-of-living, poverty
levels.
- For
policy and institutional frameworks: Important for governance,
accountability, rule of law, transparent investment climate.
8. Summary & Key Takeaways
- Pakistan’s
economy is stabilising, but growth remains modest and significant
structural challenges persist.
- Key
strengths: youth population, agriculture base, strategic location,
service/IT potential.
- Key
constraints: debt burden, productivity gap, external vulnerabilities,
infrastructure bottlenecks, governance issues.
- The
future hinges on reform implementation, investment in human capital and
infrastructure, managing risks and external shocks.
- For
students: Understanding these dynamics is crucial—not only for exams but
for grasping how macro-economics, policy, global linkages and local
realities interact.
9. Suggested Discussion
Questions
- What
are the structural factors that have constrained Pakistan’s growth,
despite periods of higher economic expansion?
- How
do external shocks (such as commodity price changes, floods) affect
Pakistan’s economy? Give specific examples.
- If
you were an entrepreneur in Pakistan, which sector would you choose and
why, given the current economic conditions and future opportunities?
- What
role does human capital (education, skills) play in Pakistan’s future
economic growth?
- Evaluate
the risks to Pakistan’s economy if reforms are delayed or global
conditions worsen.
