Importance of Economy
An overview of Pakistan’s economy
Challenges to Pakistan’s economy
Solutions to improve the economy
Why is the economy important?
The economy is an indicator of development and
A good economy ensures better chances of survival and
development of a state.
If we understand the cycles and systems in Economics,
we can better understand how to manage our money
The economy of Pakistan is the 26th largest in
the world in terms of purchasing power parity
(PPP), and the 44th largest in terms of nominal
AN OVERVIEW OF
The period from 1947 to-1950 saw minimal
economic growth due to the government’s main
priority being the drafting of a constitution.
There were multiple governments during this
period, which saw 3 different people as head of
Muhammad Ali Jinnah
Sir Khawaja Nazimuddin
Sir Ghulam Muhmmad
The period from 1947 to 1950 saw minimal economic growth due to The 1950s
being the decade of planning for an economy transitioning from an agrarian
economy to a semi-industrial one. Political instability continued, with 3 people
serving as governor-general for 6 years before the post was abolished. Nonetheless,
the decade saw progress.
The Colombo plan of 1951 was followed by a series of 5-year plans from 1955-to
1958. A ten-year perspective plan and a 3-year development plan also followed.
The Korean war helped boost Pakistan’s exports and the government regulated
imports to prevent an excess burden on the economy. All of this resulted in
Pakistan’s GDP seeing massive growth.
Agricultural growth: 1.9%
Manufacturing growth: 7.7%
Economic Growth: 3.1%
The period from 1947 to 1950 saw minimal economic growth due to the government’s
main priority being the drafting of a constitution. There were multiple governments
during this period, which saw 3 different people as head of s1958 saw the rise of Ayub
Khan via a military coup. The late ’50s and the majority of the ’60s saw Ayub Khan’s
rule. The economy saw huge progress due to political stability.
The Green Revolution saw agriculture growth at a rate of 5% per annum.
The first half of the ’60s saw large-scale manufacturing grow at a rate of 16% per
year, which reduced to 10% after the 1965 war with India.
GDP growth: 6.7%
Manufacturing growth: 8.51%
The period of 1969-1971 saw 3 different rulers and the separation
of the east wing of Pakistan into a new Country-Bangladesh. This
was followed by floods, a rise in oil prices, and failures of export
crops. The PPP rule of 1971-1977 saw huge losses to the economy.
Inflation rose to a record 15% and the deficit reached 8% of the
The nationalization policy dealt a further blow to the country.
Agricultural growth: 2.7%
Large-Scale Manufacturing Growth: 5.5%
Another military takeover in 1977 saw General Zia take control. He began
reversing the PPP’s nationalization scheme. He managed to extract large
sums from the United States as an aid for fighting the USSR and used the
funds to develop the country. He was further helped by remittances from
middle east workers.
The national savings to GDP ratio rose to 16%.
Agricultural growth: 5.4%
LSM growth: 8.8%
Average GDP growth: 6.3%
General Zia’s death in 1988 saw the return of democracy to
Pakistan. However, the ’90s were marred with political
instability as the PPP and the PML-N ruled the country.
The GDP growth saw its worst increase of only 1.7% in 1996
and the second-worst inflation of 14.5% in 1995.
Poverty rose, and foreign debt tripled.
Pakistan’s nuclear program drew further sanctions and
left the country on brink of bankruptcy.
Agricultural growth: 4.4%
LSM growth: 4.8%
GDP growth: 4.05%
1999 saw the implementation of another martial law. General Pervez
Musharraf took the reins this time. The era of General Pervez Musharraf
and General Ayub Khan are considered as the golden era’s for the
Pakistani Economy. The economy along with the financial status of
Pakistan was immensely balanced and a great economical outcome was
Growth rates saw increases until 2004-2005’s peak of 8.6%.
Debt to GDP ratio saw a decrease from 100% to 55%.
Foreign exchange reserves increased by $9 billion.
Agricultural growth: 5.4%
LSM growth: 8.8%
Average GDP growth: 6.3%
When General Pervez Musharraf resigned, the PPP took control in
2008, and the country once again suffered economically. The
growth saw a massive decline in either agricultural or overall
Economic growth slowed down to 4.09%, and the yearly
growth fell to 2%.
Agricultural growth: 2%
LSM growth: 4.4%
Average growth rate: 4%
PPP rule continued until 2013, after which the PML-N took
charge. The PML-N managed to fix a crippled economy by
using IMF loans. GDP growth saw an increase year-on-year
and inflation dropped for most of their rule. Macro-economic
stability ensued and Moody’s declared Pakistan’s economy
Average GDP growth rate: 5%
In 2018, the PTI was elected for the first time. Prime Minister
Imran Khan was confident that his party will bring all the
statistical success to the Pakistani Economy. However, the
party introduced various economic reforms that had the wrong
GDP growth rate fell to a historic low of 0.99% in 2019,
much below the 5.55% in 2017.
Furthermore, macroeconomic stability had diminished as the government added $70
billion in loans to the already existing debt. The economic situation has been
worsened in 2020 by the coronavirus pandemic, which has erased millions of jobs
and plunged the country into a deep crisis. Analysts have expected low growth in
Pakistan is the third-largest exporter of rice in the world and
produces enough food grains to feed its people. Pakistan is
also one of the five major textile-producing countries in the
world. Pakistan also produces the third largest quantity of
milk in the world.
Manufacturing and industry now account for 25% of the income;
when we recall there was not even a single industry worth its
name at the time of partition. So if we look at where we were and
where we are, I think the justification for Pakistan in terms of the
betterment of economic conditions of Muslims in this part is very
strong. But, we have not lived up to our potential. We can do
much better than this.
Manufacturing and Industry
1. We Import More and Export Less.
2. We Consume More and Save Less.
3. Government Spends More than it Earns as Revenues.
4. Political Stability, Law, and Order/Security.
Major Challenges to Pakistan’s Economy
Till Today,80% of our imports were financed by our
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.
We have to change the attitude of preferring the
imported goods in order to fill in the gap b/w our
imports and exports.
1. We Import More and Export Less
Out of every hundred rupees of our national income, we
consume 80 rupees and save only 20 rupees.
Pakistan’s saving rate is 19.9%.
We need at least a 24-25% investment rate to grow, and if
we want to rely on domestic savings, your saving rate
should be 25% India has 28% saving rates. While China’s
saving rate is 44.9%.
2. We Consume More and Save Less
Pakistan’s government takes away 20% of its national income as its
own. 80% is left in the private sector and 20% in the hands of the
government is spent on defense, debt servicing, development of
education, health, general administration, etc.
The revenue generated is only 15% of the GDP at best, and on the
worst days, it is 12 to 13%.
Out of every rupee of income received by a Pakistani, on average,
the tax paid is only 9 paisas and 91 paisas remain with the
3. Government Spends More than it Earns as Revenues
The overall arching theme is that for a robust economy we
should have political stability, law and order, and security.
Until the country has gotten rid of the image of political
instability, poor law and order situation, and insecurity, where
investors from all over the world hesitate from coming to
Pakistan and investing, we will not be able to make any
progress in this country.
4. Political Instability, Law, and Order/Security.
How can we overcome these challenges and
problems and improve our economy?
A lot has been written and talked about, but I
will focus on only a few action points.
Solutions to improve the economy
We as a nation are too oriented and too cynical where we find
everything wrong in this country. Unless we change our mindset and
unless everybody who is doing what he is supposed to do carries out
his or her task with sincerity and honesty, we are not going to go
The media is muddying the water with their sensational stories and
inviting so-called experts who contribute to projecting negative
thinking and a negative national psyche. Unless we have a positive
“can do” mentality, it will be difficult to progress. There are no
Solutions #1. Change in National Psyche and Mindset
There is no substitute for building up human capital. The private
sector, public sector, NGOs, local communities, philanthropists, etc,
are all here to put their hands on deck and participate in making sure
that every child goes to school. Every high school graduate has some
technical and vocational skill or goes for higher education.
Unless we build up human capital, we are just going to be left behind
because the world economy is going to be a knowledge-based
Pakistan lags behind other countries in the institutions, infrastructure,
and incentives for human capital formation. We have no choice but to
accelerate the pace to catch up with others.
Solutions #2. Building up of Human Capital
Pakistan is one of the few countries which has a young labor force
that can be harnessed for its own and global economy.
Japan, Europe, the USA, and after 2050 China are going to have an
aging population where the ratio of old to young people is going to
increase. India and Pakistan are two countries where the ratio of
younger people to the older ones is going to increase.
If we tool these young men and women properly, we increase the
female labor force participation, give them skills and knowledge,
and they can become the labor force for the rest of the world.
This will give a big boost to Pakistan’s economy.
Solutions #3. Young Labour Force
As the population is increasing, one cannot govern Pakistan sitting in
Islamabad, Karachi, Lahore, Peshawar, or Quetta. One has to devolve
powers, decentralize and delegate authority, and provide resources to
the local/district governments so that they can take decisions on their
Sitting in Islamabad one cannot visualize what is needed in rural areas,
but the people in rural areas know exactly whether they need water,
fertilizers, or the fruit processing industry. Let us devolve powers to
the people at the grassroots level and there would be much better
allocation and utilization of resources.
Solution #4 Governance, Devolution, and Decentralization
There must, however, be the accountability of the local
governments by the provincial governments and of provincial
governments by the federal government but not interference or
usurpation of powers.
If we do that, then a lot more can happen with the same amount
of resources that are being wasted today, and the economic
growth rate can be raised from 6-7 percent on average to 8-9
Pakistan and its people have a lot of potential and we are
blessed with a whole lot of natural resources.
If the government plans wisely, and the people work
hard, the economy of Pakistan can be taken to a whole