Pakistan flag Pakistan: Economic and Political Overview

The economic context of Pakistan

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Pakistan has achieved steady growth since 2013 in the aftermath of a credit facility agreement with the IMF. Economic growth slowed in recent years due to measures taken by the authorities to address macroeconomic imbalances and turned negative in the aftermath of the COVID-19 pandemic. According to the IMF's estimates, growth resumed in 2021, reaching 3.9%, and should follow an upward trend over the forecast horizon, at 4% this year and 4.5% in 2023. Private consumption (around four-fifths of GDP) has benefited from the fiscal support plan for households and from foreign remittances. Furthermore, the industrial sector performed above expectation in the period Apr-June.

Concerning public finances, the planned rebalancing of the public deficit that followed the conclusion of the agreement with the IMF worth USD 6 billion over 39 months has been halted by the crisis due to falling revenues and rising public expenditure. The federal budget deficit increased by 29% y-o-y to PKR 1.8 trillion (3.3% of GDP) in the first half of FY2022 (July-December 2021), despite a double-digit increase in revenues and a slowdown in public spending. Current expenditure accounted for 92% of total expenditure, of which 40% was spent on interests on loans. Public debt declined to 83.4% of GDP in 2021, and is expected to follow a downward trend over the forecast horizon (80.9% in 2022 and 75.8% next year – IMF). Massive rupee depreciation, persistent increase in the rates of agriculture commodities, and high prices of petroleum products were the main causes of high inflation, at 8.9% in 2021. The government has set the average inflation target for the FY2021-22 within the range of 7-9%, with the IMF forecasting a rate of 8.5% in 2022 followed by 7.6% in 2023.

Pakistan's unemployment rate increased slightly to 5% in 2021, from 4.1% before the pandemic, due to the negative economic impact of the COVID-19 pandemic. The IMF estimates that the rate will decrease to 4.8% this year and 4.7% in 2023. The number of people no longer actively seeking work is increasing. The level of underemployment remains very high and much of the economy is informal. While the poverty rate has fallen by 40% over the last two decades, it is still high:  using the lower-middle-income poverty rate of USD 3.2 per day, in fact, the World Bank calculated that Pakistan's poverty ratio stood at 39.3% in 2020-21.

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 300.41348.23376.490.000.00
GDP (Constant Prices, Annual % Change) -0.95.76.03.54.2
GDP per Capita (USD) 11100
General Government Gross Debt (in % of GDP) 79.674.977.871.166.0
Inflation Rate (%) 10.78.912.119.910.0
Unemployment Rate (% of the Labour Force) 6.66.36.26.46.2
Current Account (billions USD) -4.45-2.82-17.320.000.00
Current Account (in % of GDP) -1.5-0.8-4.6-2.5-2.5

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

The agricultural sector is the main pillar of the Pakistani workforce. It contributes to 22.7% of the GDP and employs 36.9% of the active population. Wheat, rice, cotton, sugarcane, fruits, vegetables and tobacco are among the major crops. Cattle livestock farming remains important as the country is among the top 10 beef and veal producers in the world. However, its contribution to exports remains limited after years of export ban. Pakistan is the 4th largest cotton producer in the world and has abundant natural resources, mainly copper, oil and gas. The Pakistan Bureau of Statistics estimates 2020-21 rice production at 8419.7 thousand tonnes (+13.5% y-o-y), whereas wheat production stood at 27464.1 thousand tonnes (+8.7% y-o-y).

The industrial sector contributes to 18.3% of the GDP and employs 25.8% of the population. The major industries are textile production (the largest source of foreign exchange revenue), oil refining, metal processing, and the production of cement and fertilisers. Maritime transport is also a significant activity; however, the market is dominated by foreign shipping companies and the state-owned Pakistan National Shipping Corporation (PNSC). The manufacturing sector accounts for 11.5% of GDP (World Bank). Total industrial manufacturing production increased by 4.2% year-on-year in the first eleven months of 2021 (data Pakistan Bureau of Statistics).

The tertiary sector contributes to 52.8% of the GDP and employs more than one-third of the workforce (38.1%). The IT sector is growing rapidly, contributing around 1% of GDP and accounting for 3.5% of exports. Remittances from Pakistanis working abroad represent a considerable financial income for the country. During the period July-March of FY2021, the services sector grew 4.4% (Ministry of Finance).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 36.9 25.0 38.1
Value Added (in % of GDP) 22.7 17.7 52.8
Value Added (Annual % Change) 2.7 -2.6 -0.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
51,7/100
World Rank:
152
Regional Rank:
34

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
4.62/10
World Rank:
74/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Latest Update: December 2022

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