Tag: pakistan economy

With the Pakistan-India conflict catapulting both nations into the international spotlight, many have begun to notice the remarkable economic trajectory Pakistan seems to be treading on. An award winning journalist from Barrons has labelled Pakistan’s economy a “mini-miracle”. 

Analysts have highlighted how Pakistan represents a missed opportunity for investors, citing the country’s rapidly improving macroeconomic indicators along with the improving health of the domestic capital and financial market. Data from the Pakistan Stock Exchange (PSX) suggests that the benchmark index of the exchange, KSE-100, has “tripled’ in just two years, indicating a great return on capital for foreign investors.

Moreover, reports indicate that Eurobonds maturing in 2031 have marked an improvement from 40 cents to 80 cents on the dollar. This means that investors are now willing to pay 80 percent of the bonds face value instead of a measly 40 cent. This improvement reflects growing confidence of international investors regarding Pakistan’s ability to pay back its debt without defaulting.

Moody’s, an internationally acknowledged credit rating agency, also improved the domestic banking sector outlook from ‘stable’ to positive. Fitch, yet another renowned credit rating agency, also upgraded Pakistan’s economic outlook by boosting the country’s credit rating from CCC+ to B-. 

The chief investment officer of an internationally recognized capital management institution has outlined how India’s recent aggression towards Pakistan “won’t likely knock Pakistan’s recovery off course” according to Barrons. The capital management company now holds the view that purchasing Pakistan’s debt is “not risky enough” anymore despite persisting Pak-India tensions.

However, the situation was starkly different two years ago, with inflation skyrocketing to approximately 38 percent and the economy being on the precipice of default. The State Bank of Pakistan (SBP) was able to rein in inflation, by raising interest rates from 10 percent to a staggering 22 percent. 

Since then, inflation has fallen significantly along with default being averted – owing to Islamabad reaching an agreement with the International Monetary Fund (IMF) regarding the disbursement of $7 billion of which over $2 billion have been disbursed till date. 

However, it was not just the IMF agreement that averted disaster but the benevolence of those nations that had extended credit to Pakistan. This is because these creditors, such as China, United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) allowed for Pakistan to roll over its debt, creating fiscal breathing space.

Another reason behind the recent praise Pakistan’s economy has received from experts is the current account. While the economy has witnessed large current account deficits historically, Pakistan recorded a large current account surplus of $1.2 billion in March 2025. Many analysts have outlined however that the current account surplus was a result of large remittance inflows, stemming from rising immigration levels.

Experts have commended lawmakers’ commitment to sticking to the roadmap provided to it by global lending institutions such as the IMF. However, given the state of the economy two years ago, Pakistan had no choice but to comply with IMF prescribed austerity measures.

2024 was undoubtedly a turbulent year for Pakistan, beset by political uncertainty and terrorism. These factors undoubtedly harmed the economy, making it imperative to study key economic indicators to assess the direction in which Pakistan is headed.

Pakistan’s Gross Domestic Product (GDP) skyrocketed from $337.46 billion to $374.6 billion. This remarkable rise can be attributed to various factors, including a low inflation rate, increased domestic consumption levels, and good governance.

In the preceding year, 2023, the economy was in shambles as it shrank by 0.2 per cent. However, statistics from the International Monetary Fund (IMF) suggest that the real GDP growth rate for 2024 stood at a respectable 2.4 percent.

While this is lower than the regional average of 6.4 percent, as per the World Bank, it is still a remarkable feat for Pakistan. This is because lawmakers in Islamabad successfully lifted the economy out of its downward spiral.

GDP per capita also recovered slightly in 2024 to reach $1,590. This rise in GDP per capita reflects an 8.9 percent growth rate in absolute terms. While this could be lauded as a victory for Islamabad, it is to be noted that GDP per capita levels are still lower than they were in 2022, after which the economy shrank.

It is worth noting that the unemployment rate in Pakistan shrank by over six percent and settled at eight percent despite the increase in the working-age population in the preceding year. The reasoning behind this could very well be the lower per capita income levels discussed earlier.

Comparing the economy this year to the recent peak experienced in 2022 has several implications for the labour market. The falling unemployment rate could be attributed to the drop in per capita incomes.

This is because employers may find it more economical to rely on labour as it can be procured in a relatively cheaper manner, causing an excessive demand for cheap labour. International investors could then invest in the economy to exploit lower wages in Pakistan and earn higher profits.

This explanation makes sense as billions of dollars have been poured into Pakistan, especially around the Shanghai Cooperation Summit. Agreements with Saudi Arabia alone brought in over two billion dollars in investments.

As for the rise between 2023-24, experts are posing an explanation that can be derived from the principles of economics. Many workers who were not willing to supply their labour at the low levels of income in the preceding year entered the market as employers bid wages up. Statistics from Trading Economics support this argument as the minimum wage rose from 32,000 to 37000 rupees in the past year.

Pakistan’s current account deficit shrank from $3.27 billion to just under a billion. This trend is largely a result of the drop in international crude oil prices, which averaged around $70 per barrel, compared to last year’s higher average of $80 per barrel.

The drop is a result of Pakistan’s historical reliance on crude oil imports, stemming from a lack of local supply. Petroleum-related entries on the import bill run as high as 17 billion dollars annually, according to the Observatory of Economic Complexity.

It is in the interest of Pakistanis that economic recovery continues into the next year. If Pakistan posts up growth rates as it has this year, it could successfully complete its recovery. Businesses in Pakistan will welcome such a change as international investors are keen on investing in economies that aren’t going through recessions.

Like previous couple of years, 2024 also witnessed Pakistan’s economic woes as political uncertainty continued to grip the country. However, it also saw Pakistan beginning to escape the depths of the economic quagmire in which it was bogged down.

As the year comes to a close, we take a look at 2024’s most important events that shaped the country’s business landscape and the impact these events had on the economy.

Political Economy

Political clashes and marches from Pakistan Tehreek-e-Insaf (PTI) significantly damaged the economy. At the peak of political clashes, a colossal Rs190 billion were lost every day the protests continued. Businesses were forced to cease operations multiple times throughout the year as protesters choked vital roadways or forced the government to cut off access to certain cities, especially the federal capital.

The timing of some of the protests was especially insidious considering the fact that they were held on the same day as the start of the high-profile Shanghai Cooperation Organisation summit or when a Belarusian delegation led by its president reached Pakistan. While this was an attempt to highlight local issues on the global stage, the timing was damaging as international investors prefer to not invest in countries marred by political uncertainty.

Islamabad’s measures to crack down on the protests were equally damaging. The decision to close major highways such as M-1, M-4, M-11 and M-14 caused immense losses to businesses. For instance, fuel tankers remained stranded on highways while stations ran out of fuel to sell, resulting in pump owners remaining unable to realise revenues.

Furthermore, slowing internet speeds during protests hindered business activities at an unpresented level. Freelancers working for international clients faced communication issues, causing delays. These delays significantly strained customer-client relationships, which led to Pakistani freelancers losing out on contracts.

Internet slowdowns and VPNs being banned also disrupted the operations of IT exporters. Thus, Prime Minister Shehbaz Sharif’s announcement about aiming to achieve a $25 billion IT export target seemed counterintuitive amid policies hurting the very sector they aim to develop.

Economy unhinged by terrorism 

Pakistan has been beset by terrorism for far too long. Terrorism surged during the Soviet-Afghan war in 1979 and as it stands, terrorists still have a significant negative impact on Pakistan’s economy.

Terrorist attacks on foreign nationals continued in Pakistan in 2024. An attack outside Karachi airport on Chinese engineers aimed to sour Pak-China relations and reduce the inflow of foreign direct investments (FDI). However, terrorists have been unable to derail Pakistan from the path of economic prosperity as China poured an unprecedented amount as investments into Pakistan.

China’s FDI levels sat at $404 million in the first quarter of FY 2024-25. Despite the attack against its nationals, China’s FDI levels surged by 164% in comparison to the same quarter of the previous year and formed 44.8% of total FDI in Pakistan in this quarter.

Loans and Investments

Islamabad was able to successfully negotiate and oversee the release of $1.1 billion as part of the International Monetary Fund’s (IMF) $7 billion extended fund facility package. This marked the beginning of a surge in business activities as investor confidence in the economy was restored.

The KSE-100, which is the benchmark index of the Pakistan Stock Exchange (PSX), started the year at around 63,000 points which now hovers around 110,000 points. This represents a remarkable increase of approximately 75 percent in the index’s value.

Experts are predicting that the bull run of the PSX might run into the next year as political tensions between PTI and Islamabad might ease up due to ongoing negotiations.

Apart from local developments, international investments remained strong too. PM Shehbaz’s visits to the Kingdom of Saudi Arabia (KSA) and Qatar were able to bring in $600 million and $3 billion from both countries, respectively.

Pakistan also managed to sign eight Memorandums of Understanding (MOU) with Belarus to strengthen trade ties between the two countries. It is also to be noted that KSA and Pakistan managed to sign 27 MOUs valued at $2.2 billion, which were to be invested in various sectors of the economy. This was a significant step in the positive direction for cash-strapped Pakistan.

The State Bank of Pakistan (SBP) has reduced the interest rate by 200 basis points, bringing it down to 17.5 per cent.

The decision regarding reduction in policy rate was made after the inflation rate slowed in the country.

The Monetary Policy Committee (MPC) observed that the continued ease in inflationary pressures and the policy rate cuts will support the growth in Pakistan’s key sectors.

Interestingly, this marks the third consecutive reduction in key policy rate, followed by a 150 bps cut in June and another 100 bps reduction in July.

“At its meeting today, the MPC decided to cut the policy rate by 200bps to 17.5 per cent, effective from September 13, 2024,” the central bank said in a statement.

“Both headline and core inflation fell sharply over the past two months. The pace of this disinflation has somewhat exceeded the MPC’s earlier expectations, mainly due to the delay in the implementation of planned increases in administered energy prices and favourable movement in global oil and food prices.”

The MPC was of the view that the global macroeconomic environment has turned favourable amid the substantial softening of crude oil prices.

Pakistan’s headline inflation is expected to ease further in August 2024, settling between 9.5 per cent and 10.5 per cent, with a continued downward trend anticipated in the coming months, according to the Finance Division’s statement on Friday.

The Ministry of Finance, in its ‘Monthly Economic Update and Outlook’, highlighted that the inflation rate could drop even further to between 9 per cent and 10 per cent by September 2024, attributed to the stabilisation of key economic indicators.

July 2024 saw headline inflation at 11.1 per cent year-on-year, a decrease from 12.6 per cent in June 2024. This marks the lowest Consumer Price Index (CPI) figure since November 2021, when inflation was recorded at 11.5 per cent, as per data from the Pakistan Bureau of Statistics (PBS).

The Finance Ministry’s report also pointed to positive trends in external indicators such as exports, imports, and workers’ remittances, which are on an upward trajectory.

A brokerage house noted that August’s inflation figure is expected to dip into single digits for the first time in nearly three years.

Read more: Exchange rates: PKR up by over 10 paisa against dollar

Looking ahead, the report projects that exports will range between $2.5 billion and $3.2 billion, imports between $4.5 billion and $5 billion, and remittances between $2.6 billion and $3.3 billion in August 2024.

The stable outlook for the external sector is contingent upon factors including a stable exchange rate, revived domestic economic activities, improved agricultural output, lower domestic and global commodity prices, and increased foreign demand.

In the industrial sector, the Ministry of Finance anticipates that the Large Scale Manufacturing (LSM) sector will maintain its positive growth trajectory in FY2025, driven by improved external demand, a stable exchange rate, declining inflation, and a more accommodating monetary policy.

Pakistan plans to raise up to $4 billion from Middle Eastern commercial banks by the fiscal year 2026, according to the Governor of the State Bank of Pakistan (SBP), Jameel Ahmad.

In his first interview since assuming office in 2022, Ahmad revealed that Pakistan is also in the final stages of securing an additional $2 billion in external financing, which is essential for the approval of the $7 billion bailout programme from the International Monetary Fund (IMF).

The IMF and Pakistan reached a preliminary agreement on the loan in July. However, the agreement still needs approval from the IMF’s executive board and confirmation of financing assurances from Pakistan’s development and bilateral partners.

Ahmad expressed confidence that Pakistan’s financing needs will be met smoothly in the next fiscal year and in the medium term. Historically, Pakistan has depended on long-time allies like China, Saudi Arabia, and the UAE to extend loans rather than demand immediate repayment. Ahmad expects similar support for the next three years, giving the government more time to stabilise its finances.

Read more: Exchange rates for Tuesday: PKR gains 9.6 paisa against US dollar, 37 paisa against Euro

He also mentioned that Pakistan’s financing needs might be lower than the 5.5 per cent of GDP projected by the IMF. This is because the country’s external financing requirements have been declining, and the IMF’s projections were based on a higher current account deficit than what has materialised.

Regarding monetary policy, Ahmad noted that recent interest rate cuts have successfully reduced inflation, which stood at 11.1 per cent in July, down from over 30 per cent in 2023. He emphasized that future interest rate decisions would be based on economic developments. Pakistan’s central bank had reduced interest rates from a record high of 22 per cent to 19.5 per cent and will review its monetary policy again on September 12.

Ahmad, reflecting on his first year as governor, described it as challenging but expressed optimism that the situation has improved, with a focus now on growth, digitalisation, and financial inclusion.