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 picked up in 2022 reaching 6% of GDP despite disruptions caused by floods, a tight monetary stance, high inflation, and a less conducive global environment; while a strong inflow of remittances (around 10% of GDP, mainly from Gulf countries like Saudi Arabia and UAE) supported private consumption. The IMF expects the economy to decelerate slightly in 2023 (+2%) before picking up again the following year (+4.2%).

Concerning public finances, the full-year current account deficit is forecast at USD 4.7 billion (1.5% of GDP) in FY23 after USD 17 billion (4.6% of GDP) recorded in FY22 (Fitch Ratings) in light of restrictions on imports and foreign exchange availability, as well as fiscal tightening, higher interest rates and measures to limit energy consumption. The public debt-to-GDP ratio also increased in 2022, reaching 77.8% (from 74.9% one year earlier) but is expected to follow a downward trend over the forecast horizon (71.1% in 2023 and 76% in 2024, according to the IMF). In 2023, Fitch Ratings noted that a default of some sort appears probable following indications that the authorities are considering debt restructuring, while further deterioration in external liquidity and funding conditions could also worsen the situation. Inflation spiked to an estimated 12.1% in 2022 and is projected to further increase to 19.9% in 2023 amid continued rupee depreciation, high prices of petroleum products, and the persistent increase in the rates of agriculture commodities (Pakistan’s imports of food surged by 65% following the floods). The World Bank Report estimated financial needs for post-flood rehabilitation and reconstruction to amount to at least USD 16.3 billion.

Pakistan's unemployment rate stood at around 6.2% in 2022 and is expected to remain stable in the near future. 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 3.2 per day, in fact, the World Bank calculated that Pakistan's poverty ratio stands at around 40%. The country has a low GDP per capita (PPP), estimated at USD 6,662 in 2022 by the IMF.

 
Main Indicators 202020212022 (E)2023 (E)2024 (E)
GDP (billions USD) 300.41348.23376.490.000.00
GDP (Constant Prices, Annual % Change) -0.95.76.00.53.5
GDP per Capita (USD) 1,3771,5641,65800
General Government Gross Debt (in % of GDP) 79.673.675.873.668.9
Inflation Rate (%) 10.78.912.127.121.9
Unemployment Rate (% of the Labour Force) 6.66.36.27.06.8
Current Account (billions USD) -4.45-2.82-17.410.000.00
Current Account (in % of GDP) -1.5-0.8-4.6-2.3-2.4

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

The agricultural sector is very important for the Pakistani economy: it contributes 22.7% of the GDP and employs 37% 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. Pakistan is the fifth-largest cotton producer in the world and has abundant natural resources, mainly copper, oil and gas. During 2021-22, the agriculture sector recorded a growth of 4.4%. The crops sector outperformed and posted a growth of 6.58%, with cotton ginning growing by almost 9.2%. In the same fiscal year, livestock farming grew an estimated 3.2%: overall, the sector had a share of 61.89% in agriculture and 14.04% in GDP (data Ministry of Finance).
 
The industrial sector contributes 18.8% of the GDP and employs 25% 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 12.4% of GDP, with large-scale manufacturing accounting for three-quarters of the total. During the first nine months of the fiscal year 2021-22, large-scale manufacturing grew an estimated 10.4%. Overall, the industrial sector grew by 7.2% in FY 2022 (data Ministry of Finance).
 
The tertiary sector comprises 52.1% 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. Remittances from Pakistanis working abroad represent a considerable financial income for the country. During FY 2022, the services sector posted a growth of 6.2%, on account of 10% growth in wholesale and retail trade, 5.4% in transport and storage, and 4.1% in accommodation and food service (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 18.8 52.1
Value Added (Annual % Change) 3.5 7.8 6.0

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 2023

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