How to Deal With Recent Economic Woes in Pakistan? By Ahsan Shah

How to Deal With Recent Economic Woes in Pakistan? By Ahsan Shah

The economic condition of Pakistan is very bad nowadays. It has improved a lot in the month of August 2022 but still, there is a need for many reforms. Pakistan must go through immediate economic and political reforms to deal with its economic woes. Pakistan is on the verge of economic chaos and there are many factors behind this condition.

A country with a lower saving rate needs to borrow more finance. So external debt is obtained to sustain the growth rate of the economy which is otherwise not feasible with the given domestic resources. External debt is mostly provided by multilateral lenders (World Bank, International Monetary Fund, Asian Development Bank), bilateral lenders (Paris Club) and commercial lenders. It represents a greater burden because it has to be paid in foreign exchange and the lenders are powerful entities and countries.

Fighting an uncertain future
Pakistan’s persistent macroeconomic uncertainty, savings and private investment have been discouraged, resulting in low aggregate investment and volatile output levels. Pakistan has one of the lowest investment-to-GDP ratios which is only because of the mercantilist approach of the present government. The decline in foreign investment in recent times due to political instability also affects the economy of a country.

Devaluation of currency may lead to a “currency war” between nations. Pakistan is also facing a problem of devaluation of currency and in recent days the Pakistani currency is the most devalued currency. The devaluation has given rise to inflation in the country.

Pakistan is facing bad governance specifically in the economic sector for a long time. Because of this bad governance and bad economic policies, Pakistan has wasted a lot of money on mega projects and did not earn a healthy revenue from these projects.

To deal with the economic stress Pakistan needs immediate economic reforms. There must be an experienced economic team and that team has complete work on how to improve the economy of Pakistan. The team should work on how to bring large projects to Pakistan. There must be complete support to this team by the government. Financial discipline is essential to maintain microeconomic stability, reduce vulnerabilities and improve aggregate economic performance. This is especially important if countries are to successfully meet the challenges and reap the benefits of economic and financial globalization.

Financial discipline is essential if countries are to avail themselves of the opportunities offered by increasingly free trade and open capital markets to enhance their long-term economic prospects but it is also necessary to reduce their exposure to changes in market sentiment and volatility in capital flows and in the process that contain the risk of debt crises. There is a need to reform the agriculture system of the country. The farmers must be supported by the country in each and every regard in order to stabilize the agricultural sector of the country. The recent increase in the petrol prices and in electricity bills has disturbed the sector a lot.

Pakistan must increase its exports by making more industries
When exports exceed imports the net exports figure is positive. This indicates that a country has a trade surplus. A trade surplus contributes to economic growth in a country. When there are more exports, it means that there is a high level of output from a country’s factories and industries, as well as a great number of people that are being employed in order to keep these factories in operation.

A healthy economy is one where both exports and imports are experiencing growth. If exports are growing but imports have declined significantly it may indicate that foreign economies are in better shape than the domestic economy. Conversely, if exports fall sharply but imports surge this may indicate that the domestic economy is faring better than overseas markets.

In my opinion, there must be a proper economic team under political leadership to tackle the reasons behind the economic crises in Pakistan. Besides, the government should go for better economic policies the reduce of inflation and to enhance the value of the rupee.

The author is a student of International Relations at the National Defence University Islamabad. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.

How to Deal With Recent Economic Woes in Pakistan? By Ahsan Shah


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