Xinmiao Yang & Wei Du
The outbreak of the novel coronavirus (COVID-19), the devastating floods in 2022, and the unfavorable changes in the global situation have resulted in slower economic growth and aggravated poverty in Pakistan during 2023, putting the country at serious risk of defaulting on its debt.
Moreover, the soaring global food and energy prices have further weakened its imports, hindering the recovery that was already hampered by the floods and political corruption. The country successfully resumed a long-delayed $6 billion International Monetary Fund (IMF) bailout program in June.
Moreover, the government’s corrective policies have been effective in stabilizing its faltering economy from the verge of debt default. 2024 could be a critical moment for Pakistan’s economic recovery.
Currency collapse, inflation, dollar outflow, shrinking foreign exchange, epic floods, there is no doubt that 2024 is going to be a turbulent year judging by the political and economic events in Pakistan over the past year. With limited industrialization, generally low levels of education, under-utilization of natural resources, poor infrastructural conditions, uncompetitive SMEs, declining economic growth, a weak rupee, and shrinking international reserves, Pakistan’s economic growth is expected to remain sluggish in 2024.
Fiscal imbalances, a high debt burden and inaction on public education, rising youth unemployment, historically high inflation, and repeated delays in general elections will exacerbate poverty to varying degrees.
Pakistan faces fiscal pressure and declining foreign exchange reserves. In May 2023, Pakistan’s finance ministry indicated that the economy faced serious fiscal downside risks due to rising debt servicing costs and increased public spending in the aftermath of the floods. Foreign exchange inflows had declined, and external payments remained burdensome.
For the week ending January 12, 2024, Pakistan’s central bank reported a decrease in foreign exchange reserves by $127 million to $8.027 billion. The State Bank said that Pakistan’s debt servicing had led to a reduction in reserves and that the country would pay about $24 billion in debt servicing costs in the current fiscal year.
Political tension and social unrest on the eve of elections in Pakistan have made economic recovery uncertain. As the election approaches, the Pakistani government has repeatedly delayed the election and banned the Positive Movement Party (PMP) from participating in the election. The conflict between the Justice Movement Party (JMP) and the military is expected to erupt.
At the same time, Pakistan’s major cities have witnessed a long period of sustained political marches and violence. Some people have even resorted to radical ways to express their anger and vent their emotions. Protests have broken out in Islamabad, Lahore, Peshawar, and Karachi, as well as in the Khyber Pakhtunkhwa and Balochistan provinces, against the election.
Terrorist attacks and assassinations have increased, especially in Khyber Pakhtunkhwa, Bajaur, Dera Ismail Khan, Waziristan, Waziristan, Tulwar, Balochistan, Turbat, and Karan. The active presence of terrorist organizations in Khyber Pakhtunkhwa and Balochistan, the security situation in the country, the inability of businesses to operate normally, and the difficulties faced by a large number of self-employed people in maintaining their livelihoods have all added to the challenges.
Historical experience shows that during the election period, many contradictions in Pakistan are often highlighted and magnified, and it is very easy to face a new round of social turmoil. Regime change and political instability will remain the main risks to the implementation of reforms and the main obstacle to economic development.
The surge in oil prices has not only fueled inflation but also forced many factories in the textile and automobile manufacturing industries to shut down or cut production, resulting in massive layoffs of young workers. The International Monetary Fund has projected that Pakistan’s unemployment rate could reach 10 percent by the end of the current fiscal year, with an additional 2 million people joining the ranks of the 6 million unemployed.
Pakistan is now actively developing its infrastructure with the assistance of other countries, such as China, to create job opportunities for its youth. However, Pakistan’s economy still faces major challenges in 2024 and requires wider structural reforms and policy support to achieve long-term sustainable development.
The decline in the quality of education in Pakistan has aggravated the economic woes of the country. The public education system is beset by bureaucracy, outdated curricula, and unqualified teachers. Education is the foundation for developing the skills needed to drive economic growth and development. Improving the efficiency and quality of the education system is vital to ensure that the labor market is aligned with future economic needs, by innovating in terms of content and methodology, and by enhancing the professionalism and pedagogical competence of teachers.
The Government of Pakistan needs to design and implement more effective and transparent education policies and invest in education resources while ensuring that education reforms are inclusive and sustainable, to build a strong human capital base for Pakistan’s economic development, and to cope with and alleviate the current economic difficulties.
Pakistan’s extreme vulnerability to climate change is a key issue. Globally, Pakistan ranks fifth among the most vulnerable countries to climate change. According to data released by Pakistan’s National Disaster Management Authority (NDMA), the 2022 floods have already claimed around 1,500 lives, destroyed a large amount of infrastructure, and inflicted severe property damage on numerous families. The Pakistani government had to purchase food and post-disaster reconstruction materials with scarce foreign currency, which became the final blow that crippled Pakistan’s economy.
Pakistan aspires to transform itself into a digital economy powerhouse but to achieve this, it needs to significantly strengthen its existing digital infrastructure to capitalize on the potential benefits. It is necessary to make adjustments to the economy to pave the way for sustainable economic growth and development.
Providing widespread internet access and advanced ICT training to youth groups, focusing investment on upgrading the skills of the labor force, creating employment opportunities for a large number of youth encouraging private sector participation in productive activities, and enhancing financial inclusion will enable Pakistan to develop its potential in the field of e-commerce. In the future, Pakistan should aim to build closer partnerships with international financial institutions, especially the International Monetary Fund, to boost global confidence in Pakistan and attract more foreign direct investment.
China has always been a steadfast friend and partner of Pakistan, and has offered Pakistan support in various domains, including economic aid and infrastructure development. The China-Pakistan Economic Corridor has delivered multiple development benefits and invigorated Pakistan’s economic development.
Going forward, the key task for Pakistan is to tackle the current challenges and devise strategies to spur economic growth. Particularly in the crucial year of 2024, it will be a formidable test of wisdom to stabilize the economy, escape the debt trap, and lead a robust recovery in all sectors to achieve genuine economic revitalization.
Xinmiao Yang, Scholar, Baize Institute for Strategy Studies, Southwest University of Political Science and Law, P. R. China; Wei Du, Scholar, Institute of International Relations, Yunnan University, P. R. China.
*The author Xinmiao Yang is a Scholar at Baize Institute for Strategy Studies, Southwest University of Political Science and Law, P. R. China; and Wei Du, Scholar, at Institute of International Relations, Yunnan University, P. R. China.
**The opinions in this article are the author’s own and may not represent the views of The Diplomatic Insight. The organization does not endorse or assume responsibility for the content.