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Pakistan’s Economic Sector – Challenges and The Way Forward

Maheen Khan
Research Intern at Center for Global & Strategic Studies (CGSS), Islamabad

Pakistan’s Economy: An Overview

Pakistan is largely an agrarian economy, with agricultural exports being its biggest source of income. The agricultural sector is pivotal, as it employs around 44% of the labor force. While Pakistan has undoubtedly been gifted with expansive areas of fertile land, its output is simply not enough to sustain such a large population. Agricultural practices have not been reformed or substantially improved in the past few decades, so they have yet to achieve maximum productivity in yield per hectare. Crops are also subject to natural disasters such as pest infestation, unusually heavy monsoon rains etc., which makes them an unreliable primary means of sustenance. It should also be noted that agricultural produce is often cheaper than value-added products such as machinery and petroleum.
The manufacturing sector has experienced a growth rate of over 138% since 2000. Pakistan specializes in the production of export quality textiles and surgical equipment. This is a promising sign considering that Pakistan had an extremely limited manufacturing capacity at the time of partition. Rapid growth in the industrial sector has provided employment for many and encouraged migration from villages and smaller towns to more urban centers. However, this has unfortunately resulted in overpopulation in larger cities, an increase in slum localities and excess labor which the government and private sectors do not have the capacity to employ. Despite the impressive results of industrial growth and expansion, they do not come without their own caveats. Due to the heavy demand and consumption of fuel in the secondary sector, Pakistan’s natural gas reserves are expected to be completely exhausted within the next twenty years. This will place an additional burden on the economy as producers scramble to find a new energy source to keep up with increasing demand. Some experts note that industrial production in the secondary sector still relies largely on imported materials instead of creating value-added local products. Large business owners tend to monopolize the production of goods, creating barriers to entry for smaller firms, which not only reduces opportunities for employment, but almost exclusively caters to the elite class. Perhaps the most pressing issue of all is the country’s paralyzing dependency on foreign aid. In 2020, the government’s total debt is nearly USD 256 billion. According to the conditions of the IMF’s bailout, almost 31% of the budget for this fiscal year will be allocated to debt servicing. This is expected to increase inflation rapidly and devalue the Pakistani rupee even further. Amidst a failing economy and outcry from millions of citizens who live under the poverty line, it is difficult to ascertain how the economy can recover under these conditions. The current government’s ascend to power came with its own set of unique challenges, prompting him to implore the International Monetary Fund for a bailout package- Pakistan’s 22nd loan from the IMF thus far . These developments have led Pakistan into tumultuous waters and the future of the economy remains as uncertain as ever.

CPEC: A Chance at Survival

Despite everything, Pakistan’s saving grace seems to be its sturdy alliance with the People’s Republic of China. The two countries have enjoyed strong diplomatic ties since the 1950s. Recently, both countries signed a deal to initiate the China-Pakistan Economic Corridor (CPEC), part of China’s greater Belt and Road Initiative (BRI), which will supposedly pump nearly USD 62 billion into Pakistan’s economy over the next couple of years. This project is expected to drastically improve Pakistan’s roads and industries; it would also allow the creation of a deep sea port at Gwadar, a gamechanger in terms of attracting foreign investment and increasing local production. With India aligning closely to the Western bloc, a China-Pakistan alliance will have to endure if either country wants to retain influence in South Asia. Pakistan is of great geo-strategic importance to China, and the BRI is expected to link Afghanistan, Pakistan, Iran and Tajikistan by road in the next couple of years, paving the way for a new Asian block to emerge. In a recent statement, Prime Minister Khan emphasized that Pakistan’s economic future is “linked to China”. Seeing as CPEC is a source for enormous foreign investment and guaranteed employment for millions of people. This seems to be the way forward for Pakistan to wiggle their way out of public debt, a failing industry and seemingly endless poverty.

Conclusion

Taking into account the above, it is clear that Pakistan has unfortunately faced many structural challenges including the lack of accountability for public funds, weak industrial infrastructure and weak secondary and tertiary sectors that are heavily dependent on imports and foreign investment. As of now, there is a need of firm political will to alleviate the situations and address the concerns of the general public. However, assuming that the terms of the IMF bailout are met in full and CPEC begins to pick up speed, it is possible that within the next decade or so, the economy will receive the boost it needs to stabilize and eventually flourish.

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