Overview of Pakistan’s economy
Abdul Rafay Niazi
In the midst of the global turmoil caused by the far-reaching effects of a war during a global pandemic, Pakistan has managed to record GDP growth of 5.97pc thus far in 2022, equating to a nominal GDP of $383 billion (Khan, 2022).This is up from a mere 1.8pc in 1950 and nominal GDP of $3 billion, respectively, causing one of the world’s previously poorest economies to rise to the 24th largest economy in terms of purchasing power parity (PPP), and 44th in terms of nominal GD (Khan, 2022). This remarkable journey has not happened overnight, but some exponential growth has occurred at times, attributable to seismic shifts in the composition of the economy, with regards to the significant development of different sectors, and reduced reliance on others. Traditionally, agriculture has been the major contributor to GDP in Pakistan, as can be expected with a developing country so rich in land and minerals. However, in the past few decades, industrial sectors have grown rapidly, second to the service sector which has since become the greatest contributor to GDP, standing at 52% in 2021 (The Global Economy, 2021). The development of the services sector and its emergence in prominence has been a major part of the economic restructuring of Pakistan to say the least, which has been based on ‘liberalisation including privatisation of state-owned corporations as well as deregulation’ (PAKBJ, no date). This structural transformation is central to the achievement of a developed economy, which Pakistan is still somewhat far from achieving, despite the emergence of information, communications, and technology (ICT) industries that have majorly helped skill development. Such restructuring has also been in pursuit of the objective to create a market-based economy through increasing both innovation and investment, which has in turn caused consumption, investment, and exports to also be significant drivers of economic growth (PAKBJ, no date). Pakistan has a young population and given that 50% of the entire population are now considered to be middle class, it is no wonder that consumption has increased dramatically, causing demand to increase for branded products, international franchises, and state of the art Western malls (PAKBJ, no date). After all, a young middle class correlates positively with consumption, which also happens to be a significant driver of investment, given that to fulfil this increase in demand, vendors must be able to have somewhere to sell their products, hence the emergence of malls and franchised stores. As a result, it is also expected that investment will come not only in the form of foreign direct investment (FDI), but also domestically, aided by the stabilisation of the rupee currency, which has in turn resulted in a reduction in inflation (Shah, 2021). Such investment also ought to improve employment opportunities, which again, in turn, should increase consumption, and further increase GDP. Although much less of a focus is now placed on the agricultural sector in Pakistan, farming is still a vital part of the economy and a livelihood for many of its residents, given the tens of millions of hectares of land which are cultivated each year. This has arguably been one of the most prominent causes of the slowing of GDP growth this year and anticipation of lower growth in FY23, given that monsoon rains have been falling since June 2022, amounting to unprecedented flooding and causing 15% of the country to be under water (World Bank 2022). With over 33 million people affected by it, it is no wonder that economic growth has slowed, with it expected to only reach around 2% in FY23. It has of course caused a major disruption to agricultural output, with losses to cotton, wheat, and rice in turn causing exports to fall, i.e., because weaker cotton yields inevitably restrict the quantity of textiles which can be produced and then exported to other countries, and on the other hand, it has caused imports to increase, in order to account for the shortage in food and cotton. In response, Pakistan’s government has ‘slashed its economic growth projections [for the next fiscal year] by more than half compared to its previous estimate’ (Mangi, 2022). COVID, the war, and unprecedented floods have amounted to a significant bump in the road for Pakistan’s developing economy. Whilst the structural transformation has certainly softened the blows of such events, it certainly has not eradicated the ways in which they can hamper their economic growth. Regardless of this, Pakistan can still be considered to be on an upwards trajectory (Trading Economics 2022).