ISLAMABAD: Pakistan’s economy is currently facing severe challenges despite important strategic and development potential. These challenges stem from long-standing structural weaknesses in the economy, as well as poor economic management. It is time to address them by making urgent economic adjustments, Ali Kemal, Chief Economist at the SDG Support Unit, Ministry of Planning, Development and Special Initiatives, told WealthPK.
One of the major issues is low foreign reserves that hampers its ability to meet the international financial obligations and stabilize its currency, making it vulnerable to economic shocks and inflationary pressures.
“In addition, high inflation is another major concern. The inflation rate has surged to over 31.44 percent, which is the highest in the past 50 years. This has had a severe impact on the country's poorest citizens, who are finding it more difficult than ever to make ends meet,” he explained.
He said that with one-third of the population living below the poverty line, the increase in the cost of living has hit them the hardest. Basic necessities like food and healthcare have become increasingly unaffordable, pushing them into further despair.
“Furthermore, Pakistan's GDP, per capita income, and GDP growth have been declining steadily in recent years. Compared to its neighbouring countries, Pakistan's economic growth has been the lowest, which has had a significant impact on its people. Lack of economic opportunities has fuelled unemployment and poverty, making it harder for the country to pull itself out of the current crisis,” he added.
The Human Development Index (HDI), which measures a country’s achievements through three basic dimensions – health, knowledge, and standards of living – placed Pakistan in the 161st position out of 192 countries in 2021. This means Pakistan is among the 25 countries with the lowest human development in the world.
“Given this backdrop, it’s clear that Pakistan needs economic adjustment to restore stability. Economic adjustment strategies are essential to enable communities, companies, and workers to succeed in a changing economic landscape,” he said.
He called for fiscal reforms to stabilize the economy. Pakistan has consistently faced fiscal deficits, leading to an unsustainable debt burden. It is crucial to prioritize revenue collection and rationalize government expenditure.
“Tax reforms, broadening the tax base, and reducing tax-evasion are essential steps towards fiscal sustainability. Additionally, streamlining public-sector expenditures, reducing non-development expenditures, and implementing effective social safety nets can help in achieving fiscal stability,” said Ali.
He called for investing in education and technical skills of youth to reduce unemployment. This investment can help promote a more sustainable economy in a country where half the population is under the age of 22.