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ECONOMIC CHALLENGES IN PAKSITAN

ABSTRACT:
Pakistan was one of the summit rapidly growing developing countries between 1960 and 1990 recording an
annual median growth rate of 6 per cent. The structure of the economy was also transformed during this
period with the share of agriculture coming down from 50 per cent to 20 per cent. The subsequent 25 years
have brought about a noteworthy decline in growth rates and in more recent seven years, it has lagged
behind other South Asian countries. Pakistan is now confronted with the spectre of economic collapse and
currently facing multi-dimensional economic challenges, including a low rate of economic growth, high
inflation, energy crisis a large trade deficit and a high debt burden. Agricultural yield is expected to drop off
for the first time in more than 20 years due to the floods. Industry output is also expected to shrink with
supply chain disruptions, higher borrowing costs and fuel prices, and heightened uncertainty. Everything
became much more expensive amid decades-high inflation, the rupee plummeted, there were fears the
country may default as the central bank’s reserves remain critically low, and all the while, industry struggled
to operate with many large companies partially suspending operations. These challenges are exacerbated by
factors such as political instability, corruption, a poorly functioning tax system. Some external factors, such
as the rise in petroleum and commodity prices, have also contributed to the worsening of our troubles. In
recent years, the Pakistani government has implemented various economic reform programs aimed at
addressing these challenges, including measures to increase tax revenue, reduce public debt, and improve the
business environment. growth of small industries. Various suggestion and recommendation have been made
as to how to revive economic growth, reduce budget deficit, protect the hard-earned and costly improvement
in external balance of payments and bring debt situation under control. It should be the resolve of the
government to not to seek any more balance of payment support from the IMF. Pakistan must learn to live
without the IMF Program. Pakistan should boost forex reserves and not take new loans to pay old ones.
Expansion of GDP to tax ratio and expenditures may be prioritized towards infrastructure development,
energy sector and growth of small industries. However, Additional efforts are needed to address the
structural issues that are holding back economic growth and to promote sustainable development in the
country.

Introduction

Pakistan’s economy is currently passing through one of the most difficult and Challenging phases of its
economic history. The economic landscape of Pakistan has changed dramatically since 2007-08 owing to the
unprecedented Surge in oil and commodity prices, resulting in global economic meltdown of 2007-08 and to
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over a decade of managing the economy by successive governments with weak and frivolous economic
team, causing serious damage to the economy on the one hand and weakening the institutions, especially the
key Economic institutions on the other. While the decade of the 1990s was described as the lost decade for
Pakistan, the decade of 2008-18 was also termed as the Second lost decade in Pakistan’s economic history.

During the second lost decade (2008-18), Pakistan witnessed its economic Growth slowing at the back of
declining public and private sector investment, the Pace of job creation slowing, fiscal deficit rising and
public and external debt Ballooning. During this decade, the country also witnessed massive perishing of
institutions, particularly institutions dealing with economic policy making, Thereby the role of
“Consultants” continued to rise in government. Weakening of the institutions also wakened policy making
ability of the governments, resulting in excessive reliance on donors for policy formulation.

Against the backdrop of the second lost decade (2008-18), the new Government took charge of the state
affairs in August 2018. They inherited an Economy which was in shambles. Both fiscal and current account
deficits were High, economic growth was slowing, unemployment was rising and both public and external
debt was shooting up. The new leadership, while in opposition, had Raise expectations of the people that
once they would be in the government, they Would have the capacity to address these multidimensional
challenges. There is a general consensus among the independent economists within and outside the Country
that instead of addressing the challenges that they had inherited, the Economic team in fact further
compounded the difficulties.

The economic team, like the teams in previous governments, was weak and had little or no capacity to
deliver. The Prime Minister, under pressure to Deliver, kept on changing the key members of its economic
team. Within 32 Months in the government, the prime Minister changed four finance Ministers, six
Chairmen of the Federal Board of Revenue (FBR), four Chairmen of the Board of Investment, four
Secretaries Commerce, three Finance Secretaries, and the three Chairmen of the Securities and Exchange
Commission of Pakistan. With such a high degree of instability in economic team, should we expect stability
in the Economy? The government either had no option or was “forced” to go to the IMF For a balance of
payment support within the first 100 days of the government. The Government continued to implement prior
actions for the IMF Program. These Actions were front loaded to test the resolve of the government in
implementing formal program from July 2019. These prior actions included market-based Exchange rate
regime or in other words, massive devaluation of the currency, quickly raising discount rate as part of the
tight monetary policy and raising utility Prices (gas and electricity) with unprecedented pace. All these prior
actions were Implemented simultaneously which suffocated the economy on the one hand and raised the cost
of production on the other. These measures totally devastated the Economy and created uproar in the print
and electronic media.
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While Pakistan’s economy was already facing serious challenges owing to the implementation of the IMF
Program, the COVID-19 struck Pakistan in early March 2020 which further compounded its economic
difficulties. The Pandemic Not only created huge uncertainty but also brought colossal human suffering on
the one hand and major economic disruption around the world, and Pakistan on the other. While the
Pandemic adversely affected domestic real economic activity; it benefited Pakistan immensely in many
ways.

Not with standing benefits that accrued to Pakistan financially, it continued to lurch from one crisis to other.
The Government, reeling under the pressure to perform, kept on changing cabinet Ministers including the
secretaries, the governors of the central bank, and the captains of the economic team. Is it safe to expect
stability in the economy with Such a frequent change in the members of the economic team? The purpose of
this paper is many folds. The state of the economy as it Prevails today is not the making of the last few
years. Rather it is the continuation of the second lost decade.

Past Trends and Current Economic Situation

Economic Growth—Unstable and Difficult to Sustain

Pakistan recorded an average annual growth of 6 % per annum during the last three decades. The average
rate in the 1960s and 1980s was 5.8% and 6.5% respectively, although in the 1970s it was down to 4.8%. So
unstable has been the economic growth. Pakistan now ends up with deep recession in the 1990s. Inflation
persists over a decade or so. Poverty is widespread, and unemployment threatens the country’ s future. High
illiteracy, poor human resources, perennial deficits both in the balance of payment and in the government,
budget also hinder economic growth. The current plight thus makes Pakistani growth prospects far from
being bright. Economic planning has not paid constant attention to the need of a long—term sustainable
development. Economic policies have turned out to be ineffective, with adhocism included as part of
economic policy. Pakistan faces hardships to meet international obligations like debt servicing. More than
two— thirds of the government budget are washed away by defense expenditures as well as debt servicing.
As a result, only meager resources are left behind, being insufficient to further promote economic growth .

Population—Poor and Unevenly Distributed

The current population of Pakistan is about 140 million, spreading over the area of 796, 095 square
kilometers. About two-thirds of the Population live in rural areas. The population density per square
kilometer, according to the 1981 census, was 230, 135, 148 and 13 persons for Punjab, Sindh, NW FP and
Baluchistan, respectively. Current estimates indicate that the density increased to 382, 224, 246 and 22
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persons in 1997, respectively. The increase in population density was over 66% during the above period
(1981—1997). The increase in Baluchistan was particularly high, about 69%. Baluchistan is the most
underdeveloped province, but has the largest area with only 4 % of the total population. Thus, the population
is not evenly distributed across the country. The population was increasing at an average rate of over3 % per
annum in the recent decades, which has recently come down to 2.78%. The per capita income of Pakistan is
now $460 and Purchasing Power Parity (PPP) income is $ 2230 according to the World Development Report
1997. The growth of real per capita income has become negative. More than one—third of population is
below poverty line. The decrease in growth and squeeze in development expenditures have added to increase
poverty. The high population growth is increasing demand for public services and basic human needs.

Agriculture—Backbone of Economy

Agriculture sector continues to be the main stay for the bulk of population. It is the backbone of the
economy, contributing to the 24%) There are four provinces of Pakistan. Punjab has the largest population
and Baluchistan has the largest area. Punjab and Sindh are relatively developed provinces of the GDP. It
makes more than 70% of the foreign exchange earnings. Half of the total labor force is engaged in
agriculture. The agricultural growth rate was over 5 % during the 1960s and 1980s. It was down to 2.4% per
annum during the 1970s. During the early 1990s, it grew to 5.5% per annum. Recently, its growth has been
one of the lowest. In 1996— 7, it grew by only 0.06% (Annex I). The industrial sector is dependent upon
this sector, since major inputs for the industrial sector are drawn from agriculture. The rise and fall of the
agricultural sector affect that of the industrial sector and hence the overall growth of the economy.
Therefore, it is considered the backbone of the economy.

Out of the country’ s total area of 79.61 million hectares, 24.39 million hectares are not available for
cultivation. Only 21.6 million hectares are cultivated, but still about 9 million hectares remain as cultivable
waste land. Alone in Baluchistan more than one million hectares of virgin land lies unused. For the last
decade or so there is hardly any increase in the new arable land.

Pakistan used to be an exporter of food but, presently, it has become an importer of such food items as
wheat, lentils and powdered milk. This is caused by the increasing population pressure, slow agricultural
growth and low investment in agriculture).

Industrial Sector—Still Far from Take—Off

The industrial sector of Pakistan has not expanded much over time. Pakistan is still far from take—off stage.
The share of manufacturing sector in the GDP increased from 16% in the 1960s to 19% in the 1990 s. It
grew about 10% per annum in the 1960s, slowing down to 5.4% both during the 1970s and the 1990s.
During the 1980s, its growth was up to around 8 % per annum. Its growth was as low as 1.2% during
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1996— 7. It may be noted that the small industries which employed over 70% of the industrial labor force as
a whole were scarcely a major concern of the policy makers. Policy makers are seldom aware of the actual
performance of the small industries. Its poor growth performance, according to a survey carried out several
years ago, is repeated every year, which is not linked with overall economic growth. A policy to encourage
large industries was encouraged, which did not generate many jobs since such investments were capital
intensive. As a result, industrial growth could not absorb increasing labor.

Services Sector Producing Half of the GDP

The services sector is the largest sector, which contributes about 49% of the GDP4). Its growth rate remains
constant around 6 % per annum during the last two decades. It was, however, down to 4.6% in the 1990s.
The above survey indicated that the structural change was slow. Recently all sectors have turned to show
low growth rate. During the 1990s the economy suffers from overall depression.

Policies—Unstable and Ineffective

Development policies are not very stable in Pakistan. Economic priorities keep on changing without fully
achieving goals. Agricultural development was the top priority in the first and second development plans
(1955—65). Thereafter, industrialization policy was emphasized. While the country did not reach an
industrial take—off stage, the policy priorities were changed again. All heavy industries were nationalized,
in the name of inequitable distribution of wealth. The policy change lessened the confidence of businessmen,
affecting industrial growth so adversely. Basic Human Needs (BHN) approach, which was introduced during
the 1980s, failed all over the world including Pakistan. Recently, Social Action Plan (SAP) focuses on the
development of five social sectors as discussed later. During the late 1980s, privatization, deregulation and
denationalization policies were introduced. So far, these policies have not shown much fruit. Prices keep on
rising and double—digit inflation persists over a decade now. Unemployment is widespread and investment
is not responding to economic policies. The public policies end up with adhocism. As pointed out above,
long term real objectives for sustainable growth were not pursued. The country is beset with inter—linked
economic problems.

Challenges in Pakistan

Economic management in Pakistan has steadily deteriorated to the point where the economy has lurched
from one financial crisis to the next. At the heart of the problem has been poor management of public
finances and deep-seated unresolved structural issues in the economy that bad management and poor
governance has exacerbated. The consequences are plain to see: macroeconomic instability, high inflation,
poor public services, criminal neglect of the social sectors, widespread corruption, crippling power outages,
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growing unemployment, deepening poverty and a deteriorating debt profile. For many decades successive
governments, civilian and military, with few exceptions, pursued similar policies that contributed to or
reinforced Pakistan’s structural economic problems. In fact, their foreign policy and economic management
intersected to produce an outcome in which the country became increasingly dependent on external financial
assistance, aid and borrowing rather than finding a viable development path by relying on itself and
safeguarding its economic sovereignty.

Poverty Challenge

Poverty is a significant challenge in Pakistan. According to the World Bank, almost a quarter of the
population lives below the poverty line. The situation is particularly acute in rural areas, where poverty rates
are higher than in urban areas. There are a number of factors that contribute to poverty in Pakistan. One of
the primary causes is lack of access to education and employment opportunities. Poverty in the Pakistan is
widespread, in particular in rural areas. As a result of lack of jobs in the country, workers find it necessary to
migrate in search of better opportunities to the urban metropolises of the richer provinces (especially
Karachi) and to other countries (especially in the Gulf). Many people in Pakistan do not have the skills or
education needed to compete in the modern job market, which limits their ability to earn a decent living. The
insufficient investment in human capital, and a policy environment unsupportive of the private sector have
made the Pakistan one of poorest country.

Limited private sector presence.

While elsewhere in Pakistan there is a vibrant private sector that is responding quickly to the country’s
emerging economic opportunities, private enterprise in the Pakistan remains anemic and well below its
potential. A survey of perceptions of businessmen places Peshawar at the bottom of the list of major cities
of Pakistan. The main reasons for this poor showing were of greater policy uncertainty in the Pakistan,
weaknesses in tax administration and electricity shortages. This translates into limited job opportunities
for the citizens of the Pakistan, who find it necessary to migrate in search of employment. In Pakistan the
private sector's role in driving the country's economic growth remains limited. Several factors contribute
to the limited private sector presence in Pakistan, including:

Inadequate infrastructure: The country lacks the necessary infrastructure, such as roads, bridges, and ports,
which makes it difficult for businesses to operate efficiently.

Political instability: Pakistan has a history of political instability, which has created an uncertain environment
for businesses. This has discouraged private investment in the country.
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Limited access to finance: Access to finance remains a significant challenge for many businesses in Pakistan,
particularly small and medium-sized enterprises. This limits their ability to invest in new projects and
expand their operations.

Regulatory barriers: The country's regulatory environment remains challenging for businesses, with
cumbersome licensing procedures, high taxes, and unclear regulations.

Security concerns: Pakistan faces security challenges, with terrorism and sectarian violence a constant
threat. This has deterred foreign investors from investing in the country.

Saving—Investment Gap

In addition to above, saving—investment gap (S—I) continues to persist even after 50 years of Pakistan' s
independence. On average, Pakistan's saving rate has remained around 14% of its national income.
Pakistan' s investment was equivalent to around 19% of GNP. Thus, the resource gap of 5 % was met by
borrowing, which is unstable. Investment is hence unstable. The resource gap and the inability to mobilize
domestic resources was a source of borrowing and deficit. The deficit was a source of inflation. The
resource constraint was not only evident for the public sector but it appears that the nation became
consumption—oriented rather than saving—oriented. Over time hardly any serious efforts have been
made to diminish this gap. The situation has become even worse during the recent years. During 1996—7,
the national saving was only 11.3% of GDP; while the total investment was 17. 5%. The low savings
relative to the investment lowers growth potential and makes dependence on foreign capital inevitable.
The economic growth rate fell to 1.3% in 1996—7, one of the lowest in the recent history. The above
discussion leads us to conclude that deficit, debt and inflation are inter—linked. Present level of debt,
deficit and inflation are not sustainable (Anjum, 1995) & (Farooq, 1996). Thus, it appears that the triangle
economic disease is also linked with inefficient economic policies.

Trade Instability

Pakistan is developing country having continuous trade deficit problem. Trade instability refers to
fluctuations in the volume, direction, and composition of trade over time. Trade instability can have
significant consequences on an economy, particularly in developing countries. The reasons for trade
instability in Pakistan are numerous, including political instability, poor infrastructure, insufficient foreign
direct investment, and weak trade policies. These factors have resulted in a decline in exports, increasing
imports, and a growing trade deficit. The consequences of trade instability are also evident in various sectors
of the economy, such as employment, inflation, and growth. In the analysis of World Bank’s report “Pakistan
experienced the deficit in trade from 1975 to 2005 is equals to 1.20 billion to 1.10 billion dollars and after
2005 the economy faced serious problem of trade deficit till 2018”. Pakistan’s trade deficit reached to 1.50
billion dollars in first quarter of 2020 (SBP, 2020). This continuous deficit decreased the opportunities of
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investors’ investments which may remove the investment from the country (Panizza et al. 2009). The trade
openness policy has worsened the economy of Pakistan because of the high ratio of imports. The trade
liberalization policies are not favorable for the developing countries like Pakistan. The exchange rate
determines the dimension of trade internationally which may encourage the exports or discourage the
imports for the benefit of balance of trade for any country. The international competitiveness is also valued
on the basis of real effective exchange rate for the rest of the world. Pakistan possesses many opportunities
and corners to access in the leading global market to get maximum benefit for the welfare of economy by
investing exports competitiveness in world market. The developing world cannot rely on the market forces
of demand and supply but they have to work with strategy. Many economists as Smith, Ricardo, Mill and
others favor the trade liberalization as they recommend that world gross domestic product (GDP) would be
improved and world will work on the theory of globalization. After that the same phenomenon was also
favored by neoclassical school of thought on the basis of theory of factor proportion. The world trade
organization intervened in the wake of globalization to restrict the over protection in the shape of different
duties by different countries. The international competitiveness is observed on the basis of exchange rate.
The exchange rate is the better measure of patterns of trade and policy making to overcome the trade deficit.
It is analyzed that for different economies the exchange rates are the source of currencies’ stability. Such
trade instability results in accumulating debt burden as well as unstable economic growth. It can be said that
if we want to improve the balance of trade then we have to focus on exports promotion and imports
rationality for the economy.

External Debt:

A country with lower saving rate needs to borrow more to finance the given rate of economic growth. So
external debt is obtained to sustain the growth rate of the economy, which is otherwise not feasible with the
given domestic resources. Pakistan is one of the developing countries and faces serious debt problems,
according to World Bank Report 2000-2001, Pakistan is among the Highly Indebted Countries (HICs);
because Pakistan's present and future debt situation is very grim.

According to the World Bank total external debt may be defined as debt owed to nonresident repayable in
terms of foreign currency, goods or services. External debt is the composition of long-term debt (public and
publicly guaranteed debt plus private non-guaranteed debt), short term commercial debt and International
Monetary Fund (IMF) loans. Prior to early 1970s the external debt of developing countries was primarily
small and official phenomenon, the majority of creditors being foreign governments and international
financial institutions offer loan for development project [Todaro (1988)]. At the same time current account
deficit was common which increased the external indebtedness of the developing countries.

Several factors have contributed to high rate of debt accumulation in developing countries. These factors are
wide-ranging and interconnected. The major factor was the 1973-74 oil price increased by Organization of
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Petroleum Exporting Countries (OPEC) led to general deterioration in the external payments position of the
oil importing developing countries and forced many of them to borrow heavily. Like other oil importing
countries, Pakistan also suffered from these international events of exceptional nature. These events which
imposed severe strains on its Balance of Payments (BOP) position hampered its development efforts and led
to a marked increase in the volume of international indebtedness as well as its debt servicing liabilities.

While improper implementation of macroeconomic policies, political instability, corruption and poor law
and order situation are the main internal factors for rapid growth of external debt.

Effects of external debt accumulation on investment and economic growth of the country are always
remaining questionable for policy-makers and academicians alike. There is no consensus on the role of
external debt on growth. It has both positive and negative aspect, different experts are in view that external
debt will have favorable effect on economic growth because external debt will increase capital inflow and
when used for growth related expenditures can accelerates the pace of economic growth. It will not only
provide foreign capital for industrial development but will also give managerial know how, technology,
technical expertise as well as access to foreign markets for the mobilization of a nation's human and material
resources for economic growth. On the other hand, when external debt accumulated beyond a certain limit, it
will contract the economic growth by hampering investment. A leading explanation for this negative
relationship is the so-called debt overhang hypothesis, which states that high level of indebtedness
discourage investment and negatively affect growth as future higher taxes are expected to repay the debt.

Pakistan faces serious debt problem, which threaten the economic future of the country. Burden of external
debt and debt servicing have continued to grow over time. According to the World Bank report 2000-2001,
Pakistan is among the HICs; because Pakistan's present and future debt situation is quite dismal. In 1970 the
value of external debt in absolute term was $ 3.4 billion which went to $ 9.93 billion in 1980. The external
debt approximately doubled over from 1981 to 1990 and reached to $ 20.66 billion. External debt showed
rising trend during 1990-99 as it increased from $ 20.66 billion to $ 33.89 billion. It declined to $ 32.78
billion in 2000 due to debt rescheduling. Then external debt was $ 35.74 billion in 2003, in the last few
years external debt increased at an unprecedented rate and reached to $ 54.60 billion in 2010 [Pakistan
(2010) and World Bank (2007)].

Pakistan is now confronted with the spectre of economic collapse. We are already in a default situation, with
negotiations with the IMF on the bailout package on hold. Our foreign exchange reserves have fallen to a
new low, raising questions about the country’s ability to meet its external debt-servicing obligations. The
pattern of external overreach and internal underreach persists. This has got to a point where securing
funds/loans from friendly countries and international financial institutions is now celebrated by government
officials and even deemed by sections of the media as major policy successes. Such claims are blind to the
ineluctable reality that living off other people’s money is hardly a national achievement. They provide false
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comfort to the ruling elite but do nothing to resolve the country’s economic problems. It is an extremely
alarming situation, with no sign of any fundamental change in the economic outlook. It is not just external
debt, but also a ballooning internal debt that has brought the country close to bankruptcy.

Energy Crisis:

Pakistan faces an acute shortage of electricity and natural gas, leading to frequent power outages and an
over-reliance on imported energy sources. With every passing day, Pakistan’s energy crisis is getting more
complex and the overall economic situation is going from bad to worse. The energy shortfall keeps on
increasing and so does the circular debt that keeps reaching new highs. Meanwhile, our over-reliance on
fossil fuels continues to be the Achilles’ heel, considering that more than 60 per cent of the fuel consumed in
the country is imported. Considering that a large portion of the country’s foreign reserves is spent on
importing fuel, it is both practical and necessary to shift to indigenous and renewable sources of energy. The
power situation has worsened primarily due to inadequate transmission capacity, flawed strategy, imprudent
use of available resources, and transmission and distribution losses. The power sector circular debt has now
swelled to Rs2.46 trillion, and the independent power producers (IPPs) are facing difficulties in servicing
their dues and, therefore, have cut down generation drastically despite huge reliable existing capacity. Due
to financial constraints, the Pakistan State Oil (PSO) is unable to provide adequate oil supplies to the
powerhouses, and the same is the situation with gas supplies. Power plants are not getting liquefied natural
gas (LNG), furnace oil or imported coal as per their requirements. This has a significant impact on the
country's economy, as businesses cannot operate at full capacity, and households face difficulties in meeting
their energy needs. The government should explore the feasibility of obtaining power from low BTU gas
fields in Ghotki and optimize the wind corridor in Jhimpir to its utmost to save the funds spent on importing
fuel.

Recommendations

What can we, in Pakistan, learn from the experience of successful countries like Malaysia and Turkey that
have avoided serious economic difficulties and promoted equitable growth and better living standards for
their people, besides ensuring the much-needed national security? Following measures, if implemented in
true letter and spirit, can prove significant in arresting the current situation faced by Pakistan:

1. First and the foremost recommendation is the sovereign guarantees for continuation of long term and
sustainable economic policies. This would entail giving complete independence to monetary and financial
institutions of the country, independent of political dispensation. The courage to take unpopular decisions in
the larger national interests, credibility and ownership of economic policies, capacity building, honoring
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competence by putting competent people at the right place and zero tolerance for corruption should be the
hallmark of our future economic policies.

2. The economic uplift of the country is recommended to be linked to the inclusive participation,
establishment of rule of law, ensuring transparency, ruthless accountability, sustained policies, and full
implementation of the conceived economic policies, the cornerstone of which should be structural reforms
in all segments of the economy of the country.

3. We need to re-orient our economy from import to export-driven regimes with total discouragement
of ventures, which result into outflow of foreign exchange.

4. Re-orientation of economic policies i.e., a paradigm shift from aid dependent, debt burdened
economy to indigenization of our economy. This would entail giving focus to areas with the potential to
catalyze the indigenous growth. The forbearer towards this end is to make agriculture as the center of
gravity of our economy.

5. Tapping the huge youth potential by investing heavily in human resource development. The Ehassas
and Kamyab Jawan programmes launched by the present Government are steps in the right direction.
However, there is a need to change the culture of our youth from job seeking to job-providing by
encouraging a very strong entrepreneurial culture amongst the youth.

6. For sustained economic growth, Pakistan will have to invest heavily in alternative energy, so as to
eliminate our dependence on foreign exchange heavy hydro-carbon resources.

7. The female emancipation and women empowerment will effectively double the productivity level of
the country. Strategizing the female work force of rural areas and their employment in the agro-based
economy would give positive yields, while maintaining the cultural values of our society.

8. Investment in Big Data would bring in the much needed and much delayed technology revolution in
our young work force.

9. Strengthening law enforcement institutions and promoting national integration and cohesion to
improve internal security and defend the country against internal/external threats. This would also entail
synergy on various elements of government, de-radicalization of society, addressing root causes, regulating
financial flows, and establishing responsive criminal judicial system.

10. Expansion of GDP to tax ratio and expenditures may be prioritized towards infrastructure
development, energy sector and growth of small industries.

11. An important element in the development strategy should be the use of urban centers to stimulate the
growth process. The potential for growth in urban centers arises from the concentration of skills in a
relatively small area, which facilitates specialization and the division of labor. Additionally, conglomerations
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of large populations create markets, which can be economically served by the specialized skills. The other
side of the coin is that large population agglomerations can be politically quite vocal and thus would require,
inter alia, a more rapid and satisfactory delivery of at least the basic services. The use of urban centers as
growth engines in the Pakistan must begin with Peshawar’s economic potential and by solving its
management problems. Much of what constrains Peshawar from developing arises from the multiplicity of
agencies responsible for different functions in the city. The authorities must therefore improve the
coordination of planning and implementation of development schemes between these agencies by
establishing an apex agency, and strengthen the technical capacity of the different agencies to plan and
manage development projects by hiring suitably qualified personnel from the market.

12. The Pakistan also does not take full advantage of its hydel potential. Two broad possibilities are
raised. First, the province can earn revenue by selling electricity on the national grid. Second, the province
can set up electricity stations that, while covering their costs, could sell power within the Pakistan at a lower
rate — subject to that these suggestions are implemented in line with the National Energy policy, and to
NEPRA’s tariff determination and wheeling and distribution charges — than the power provided on the
national grid. The lower price for electricity could help to offset some of the transport disadvantages arising
from the province's geographical location that affect competitiveness

13. The need for developing a strong Military Industry Complex (MIC), with a very strong export
orientation to make defense expenditures an instrument of economic growth.

Conclusion
Pakistan is undergoing a tumultuous period of its economy, in which it has been once again forced to knock
at the doors of IMF for a bail-out package. However, having been through its worst period, its financial
indicators are showing a sign of improvement. International endorsement of economic measures in the shape
of improved ease of doing business, a positive review by the IMF mission and a very encouraging visit by
the Head of World Bank are all indicators of economy moving in the right direction. With improved law and
order situation and favorable policies, the environment is gradually improving for investors. There is a need
for keeping the impetus of the upward trajectory through sustained economic policies, so as to create fiscal
space for investment in human capital and an improved human security. There is also a need to tread
carefully and maintain a balance between keeping the leading financial institutions in good humor, while
simultaneously keeping our strategic interests, especially CPEC, intact.

On the other hand, the IMF has also refused to soften the conditions given to Pakistan, after which there is a
storm of difficulties ahead for Pakistan, which is necessary to think about how to deal with it. In the past, the
current Prime Minister Shehbaz Sharif had talked about the pact economy, saying that for the country’s
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economy, politicians should come together and support each other for the correctness of the economy. So, it
is the correct time for politicians to sit together and think about fixing the economic situation. If the IMF
fulfils its conditions, then for the people of Pakistan, such a storm of inflation will be hidden in it that no one
will be able to face.
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https://ishrathusain.iba.edu.pk/speeches/economicManagementPolicies/2004/Economic_Challenges_US_Role_Sept
_30_2004.pdf

Report No.32764-PK Pakistan North West Frontier Province Economic Report

https://strategicthought.ndu.edu.pk/site/article/view/24

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Issues in Pakistan Economy by S. Akbar Zaidi

https://www.dawn.com/news/1731883

Written By :
Alishba Anjum
444 FSL LLB5YS22
Swaiba Noor kayani
545 FSL LLB5YS22
Zufshan Malik
527 FSL LLB5YS22