Table of Contents

Introduction ............................................................................................................................................ 2
War on Terror ..................................................................................................................................... 2
Inadequate exports and Negative balance of payment: .................................................................... 2
Inflation ............................................................................................................................................... 3
Unemployment and Poverty: .............................................................................................................. 3
References .............................................................................................................................................. 5
Introduction
Pakistan has been facing a challenging economic outlook since its inception in 1947 and over the
period of time ‘decisive and far reaching policy action is demanded to address this challenging
situation’. In 1947, Pakistan had 31 million people with per capita income of 100$. Agriculture
provided us only 50% of output and the other industries were not in Pakistan. Therefore, it was
difficult to feed 31 million people and was relying on PL-480 imports from the USA. From thereon,
Pakistan has arisen a long way. Nowadays with 210 million people, our per capita income in 2019 is
1547$ which is fifteen times more. Pakistan is the third biggest exporter of rice in the world and
producing enough food grains to feed its population. Pakistan is also one of the five major textile
producing countries in the world. Regardless of these economic achievements Pakistan has clenched
over the period of 70 years, there are more challenges to the economy which cannot be
undermined. The sluggish economy of the country with high inflation rate, devaluation of rupee,
unemployment, trade deficit and war on terror have been responsible for economic hard ship of the
country. The following section would elaborate the implication of each of the factors which has
contributed to the economic problems faced by Pakistan in 21st Century.

War on Terror
When the use announced the invasion of Afghanistan, Pakistan joined hands with US in war on terror
and this has resulted in 100 billion dollar in economic losses to Pakistan. Pakistani government was
under the military rule of General Pervaiz Musharaf and his poor governance and drastic policies in
war on terror lead Pakistani economy to disaster. War on terror engulfed Pakistan and frequent
terrorist attack on Pakistani soil lead the decrement in foreign investors and business activities hence
reduction in tax collection which overall resulted in the downfall of the country economy. Before war
on terror, Pakistan’s economy was considerably stable. Pakistan’s growing economy suffered a
substantial blow in the year 2008 as the role of Pakistan in the “War on Terror” started facing severe
retaliation. This increasing uncertainty and instability caused the country to lose a major crux of its FDI
as it fell from $8 billion to $3.5 billion. After 2008 Pakistan’s situation does not seem to improve. The
economy suffers from heavy trade deficits, rising inflation rates and a fall in the value of Rupees which
fell from 60-1 USD to 90-1 USD in 2012.

The rising level of security concerns has furthered the economy near to a collapse. Pakistan is
considered to be in a state of war and is a victim of terrorism for the past few years. This has caused
economic and political instability in the country resulting in a fall in foreign investments. Many of the
people do not feel safe in the country due to which skilled labour from Pakistan is migrating to other
developed nations. They do not want to risk their time and resources in an uncertain economy where
they feel they would not be paid a price according to their skills. Foreign investors do not feel
comfortable in investing in Pakistan’s economy because the returns are not enough to match the risk
in investing in a weakened economy like Pakistan. Other than this they do feel that their lives are not
safe as they could also become victims of terrorist groups operating in the country.

Inadequate exports and Negative balance of payment:

By 2007-2008, 80% of Pakistan’s imports were financed by our export earnings. This ratio has come
down to only 50%, it may go up to 60% but a gap of 40% of financing needs in order to keep with the
import level still exists. The citizen prefer to use even the basic commodities of foreign countries rather
than locally manufactured goods. Unless we do not change this attitude of preferring the imported
goods we have to keep on relying on outsiders to fill in this gap b/w our imports and exports. Relying
on outsiders’ means that there are cycles, ups, and downs i.e. when things are good, one gets
financing, and when things are bad one starves for financing. No nation which strives to preserve its
honour must go through this particular route. The lower is this gap between our export earnings and
expenditure on imports - and that can be achieved only by expending our exports; our reliance on
external sources would be reduced. Since 2009, Pakistan’s export has been decreasing, Pakistan is an
agricultural country and relies heavily on the agricultural output, but over the period of time
agricultural sector has been facing the issues which has resulted in overall decrement of the revenue
being generated [1].

Pakistan's exports for the year 2015-2016 stood at US$ 21 Billion and imports were at US$ 44.76 billion
for the same period and this has increased more than 100% from $7.5 billion in 1999 to stand at $18
billion in the financial year 2007-2008. Pakistan's exports increased more than 100% from $7.5 billion
in 1999 to stand at $18 billion in the financial year 2007-2008. Pakistan exports rice, kinnows,
mangoes, furniture, cotton fiber, cement, tiles, marble, textiles, clothing, leather goods, veterinary
surgical supplies, sports goods (renowned for footballs/soccer balls), cutlery, surgical instruments,
electrical appliances, software, carpets, rugs, ice cream, livestock meat, chicken, powdered milk,
wheat, seafood (especially shrimp/prawns), vegetables, processed food items, Pakistani-assembled
Suzukis (to Afghanistan and other countries), defence equipment (submarines, tanks, radars), salt,
onyx, engineering goods, and many other items. Pakistan produces and exports cements to Asia and
the Middle East. In August 2007, Pakistan started exporting cement to India to fill in the shortage there
caused by the building boom.

The internal and external debts have been increasing since forever as enough goods are not being
produced locally. There is an increase in the demand for imports as locally produced goods are either
substandard or not available. The country’s exports have witnessed a severe decline in recent times
and the major cause of it is the worsening of the textile industry in the country. Textile exports
previously formed a major crux of the country’s total exports but since the global recession the whole
textile industry has been suffering and there are hardly any textile goods available to be exported. The
increase in imports and a decrease in exports have resulted in a worsening of the balance of payment.
Pakistan has been trying to fill these deficits by borrowing from other countries and as the borrowing
increases the burden of heavy debts fortifies on Pakistan’s economy.

Inflation
Pakistan’s growth record since the 1970s underscores that high and persistent inflation is
harmful to growth. Periods of high inflation concides with low growth spells, while high growth
episodes tend to be associated with a low inflation environment. Between 1978 and 1991, inflation
was 8 percent on average and real per capita growth averaged 3 percent. Between 1992 and 1997,
inflation increased on average to 11 percent, while real per capita growth fell substantially and
averaged only 1 percent. Finally, between 1998 and 2003, inflation was reduced again to an
average of 5 percent, and real per capita growth displayed a dramatic recovery. Of course,
there are other factors that determine growth in the short run and in the long run [e.g., van
Rooden (2005) [2]. Nonetheless, in light of Pakistan’s growth performance and the empirical
thresholds beyond which inflation harms growth and financial development, an appropriate inflation
target for Pakistan is 5 percent [3]. Pakistan’s inflation rate has decreased in last few year with the
inflation rate being 8.26% in 2.14 to 2.86% in 2016.

Unemployment and Poverty:

Unemployment and poverty could be linked to the poor economic policies of the government and the
lack of implementation of policies which could help improve the economic conditions of the country.
There are hardly any social benefits such as unemployment benefits for the people. Many would think
that the absence of social benefits might encourage people to work but that is so not true in the case
of Pakistan. The reason for that is even if people have the motivation to work there are so few jobs
available in the market that they would still remain unemployed. People lack skills which various MNCs
and other local companies are looking for. There is an alarming situation in the country as there is a
growing trend towards studying commerce and business administration by giving up on subjects like
science, engineering and technology. The youth of the country have a soft attitude and dream of
becoming rich overnight which has harmed their competence in the knowledge based economy of the
country. Poor employment rates mean that there would be poverty in the country and that is the case
for Pakistan too.

Energy and Water Crisis

Pakistan has faced energy crisis and water crisis since its inception. With the losses of KESC from the
point it has generated to the point they realize the billing is 45%, so 55% people are paying for those
who are stealing the electricity. Government of Pakistan out of its own limited resources is paying
200 billion rupees every year as subsidies for electricity. Our industry is at a disadvantage that they
get the orders from foreign countries but they cannot execute the orders because there are
electricity outages. In addition to economic losses it also creates inconvenience for pursuing normal
life. We have silting of our dams, but no additional dams have been constructed since Tarbela in
1974. We have water course losses of about 20-25%. Even after these losses, the water is
inequitably distributed. The influential land lords are able to take greater share of water from the
canals as compared to poor farmers. Therefore, the productivity of poor farmer is only one ton per
acre as compared to 3 tons by large holders. If we provide the water equitably to the small farmer,
he would also be able to increase the productivity from one to at least two tons resulting into
additional income, increase in exports of food grains, cotton and fruits and vegetables which will add
to export earnings of Pakistan.
References
1. UKEssays. November 2013. Economical Condition Of Pakistan Economics Essay. [online].
Available from: https://www.uniassignment.com/essay-samples/economics/economical-
condition-of-pakistan-economics-essay.php?vref=1 [Accessed 24 May 2019].
2. van Rooden, Ron (2005) Is Pakistan’s Growth Acceleration Sustainable? International
Monetary Fund. Pakistan–Selected Issues and Statistical Appendix. IMF Country Report
No. 05/408 Available via the Internet at: http://www.imf.org/external/
country/PAK/index.htm.
3. Khan, Ashfaque H., and Mohammad Ali Qasim (1996) Inflation in Pakistan Revisited. In
The Pakistan Development Review 35:4, 747–59.