Pakistan flag Pakistan: Economic and Political Overview

The economic context of Pakistan

Economic Indicators

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 picked up in 2022 reaching 6% of GDP, but it turned negative again in 2023 (-0.5%), due to the efforts to stabilize the economy through tackling fiscal and external imbalances and to a contraction in private consumption caused by the loss of income of rural populations amid floods that devastated the agricultural sector and by rising inflation. The IMF has revised down Pakistan's growth estimate for fiscal year 2024 to 2%, followed by 3.5% in 2025.

Concerning public finances, Fitch Ratings anticipates that the consolidated general government fiscal deficit will decrease to 6.8% of GDP in FY24, down from an estimated 7.8% in FY23. This improvement is fueled by a shift in the primary balance to a surplus of 0.3% of GDP, compared to a primary deficit of 0.8% of GDP in FY23. The fiscal balance is being bolstered by factors such as inflation, new revenue measures, and enhanced discipline concerning tax exemptions, subsidies, and other expenditures, including those at the provincial level. The public debt-to-GDP ratio stood at 76.6% in 2023 and should decrease marginally this year (72.2%) and in 2025 (70.4% - IMF). Overall, Pakistan's debt dynamics remain stable due to robust nominal growth over the medium term, wherein high inflation acts to counterbalance the strain from elevated domestic interest costs. Pakistan experienced its highest-ever inflation in 2023, estimated at 29.2%. It should remain high over the forecast horizon (around 23.6% in 2024 and 12.2% the following year), as per the IMF. In July 2023, the IMF disbursed USD 1.2 billion, followed by an additional USD 700 million after the approval of a staff-level agreement in January 2024. This leaves USD 1.1 billion to be disbursed pending a review scheduled for March 2024.

Pakistan's unemployment rate stood increased to 8.5% in 2023 (from 6.2% the previous year) and is expected to decrease to 8% and 7.5% in 2024 and 2025, respectively. Nevertheless, 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 3.65 per day, in fact, the World Bank calculated that Pakistan's poverty ratio stands at around 39.4%, with over 12.5 million Pakistanis falling below the poverty line in one year. The country has a low GDP per capita (PPP), estimated at USD 6,437 in 2022 by the World Bank (latest data available).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 374.66340.640.000.000.00
GDP (Constant Prices, Annual % Change) 6.1-0.52.53.64.5
GDP per Capita (USD) 1,6501,471000
General Government Gross Debt (in % of GDP) 76.276.672.270.468.3
Inflation Rate (%) n/a29.223.612.27.9
Unemployment Rate (% of the Labour Force) 6.28.58.07.56.5
Current Account (billions USD) -17.48-2.390.000.000.00
Current Account (in % of GDP) -4.7-0.7-1.8-1.6-1.6

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

The agricultural sector is very important for the Pakistani economy: it contributes 22.4% of the GDP and employs 36% of the active population, being the largest source of foreign exchange earnings. 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. Pakistan is the fifth-largest cotton producer globally and has abundant natural resources, mainly copper, oil, and gas. According to the Ministry of Finance, the growth in the agriculture sector reached 2.25% in FY 2022/23.

The industrial sector contributes 18.8% of the GDP and employs 26% 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 fertilizers. 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 12.4% of GDP, with large-scale manufacturing accounting for three-quarters of the total. During fiscal year 2021-22, the industrial sector declined by 3.76% due to drops in large-scale manufacturing (-9.87%) and construction (-9.16% - Ministry of Finance).

The tertiary sector comprises 52.2% of the GDP and employs more than one-third of the workforce (38%). The IT sector is growing rapidly, contributing around 1% of GDP and accounting for 3.5% of exports. During FY 2022/23, the services sector posted a growth of only 0.07% on account of mixed results in its subsectors: transportation and storage (+3.27%), information & communication (-2.55%), finance & insurance (-8.09%), public administration and social security (-8.99%), and education (9.94%). In the revised estimates, wholesale and retail trade slightly improved to -4.01%, whereas human health and social work improved to 10.57% (Ministry of Finance).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 37.5 25.2 37.3
Value Added (in % of GDP) 22.3 19.8 51.5
Value Added (Annual % Change) 4.4 7.2 6.2

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: May 2024

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