Iftikhar Khattak
Comprehensive measures of well-being (such as GDP per capita and income distribution), social indicators (such as the HDI and poverty rates), environmental sustainability (EPI and pollution levels), economic stability (such as unemployment and inflation rates), and governance quality (such as political stability and corruption levels) must all be taken into account to assess a country’s performance as these indicators provide a more sophisticated and accurate understanding of a country’s progress and economic growth. However, the Gross Domestic Product (GDP) and the GDP growth rate are two important metrics that should be taken into account to assess a country’s actual performance. Currently, Pakistan has a GDP of about $380 billion. However, the GDP growth rate—that was a pitiful 2.38% in 2023 and 2024—is the crucial figure. A growth rate of six, seven, eight, or nine per cent is required in the modern global economy in order to make meaningful development. Two, three, or four per cent increase is just normal growth.
The agriculture industry has significantly improved when looking at sector-level performance, with growth of 6.3% expected in 2024, up from 2.3% the year before. This is the largest rise in agriculture in 19 years. Important crops including wheat, rice, and cotton have grown by 16.82%, which has been the primary driver of this expansion. By comparison, the services industry recorded a -0.01% growth rate in 2023, indicating a drop. The growth rate of the industrial sector was -3.7% in 2023 and only slightly increased to 1.1% in 2024. The manufacturing and construction sectors are the primary drivers of the industrial sector’s performance.
Pakistan’s strong reliance on agriculture, despite its excellent progress, highlights a broader issue. The global economy of the twenty-first century is propelled by advanced services, human capital, artificial intelligence, and value addition. Pakistan’s reliance on agriculture prevents it from realizing its full economic potential. Without ignoring the agriculture sector, Pakistan must broaden its focus in order to achieve significant development, especially in the area of IT exports. For Pakistan’s economy to grow, a balanced strategy that supports industrial growth in addition to agriculture is essential.
The Economic Survey reports that due to an uptick in economic activity and an improvement in the value of the dollar, per capita income climbed by 129 dollars to $1,680 from 1,551 dollars the previous year. In Pakistan, the average monthly per capita income is currently $1,680, or around 39,200 Pakistani Rupees. Despite a little decline from the previous year, inflation is still very high. The rate of inflation for this year is 26%, compared to 28.2% for the year following. Although there has been some progress, inflation is still a major problem.
In 2023 and 2024, there has been a notable improvement in the Current Account Deficit (CAD), which has decreased by around 98 per cent to $200 million from $3.9 billion in the previous year. The noteworthy advancement might be ascribed to the government’s strict policies, specifically emphasizing exports. According to Muhammad Aurangzeb, the minister of finance, the CAD is expected to stay around six billion dollars this year. That is anticipated to be $200 million, though. He stated that the current account was in excess for three months and that an additional surplus is anticipated in May. This year’s $25.7 billion in exports, which have remained in the $20–25 billion range over the last ten years, demonstrate the revenue growth stagnation in the industrial sector. Revenue-wise, it reached $43.4 billion, overtaking $80 billion in 2022. In light of imports, this development is noteworthy. The total amount spent on IT initiatives was $2.2 billion. The IT industry is vital in today’s world as it represents a nation’s intellectual capital. Notably, India’s IT industry has grown to $250 billion, 100 times larger than Pakistan’s. This difference emphasizes how much more value should be placed on developing human capital than on military spending.
Remittances have decreased by three per cent, amounting to $23.9 billion as of right now. So far, Pakistan’s economy has been sustained mostly on these remittances. According to March figures from the State Bank, the public debt represents little over 83% of the country’s overall debt, which is close to Rs81 trillion, and about 75% of the country’s economic output. The current stock of public debt is compared to its historical values of Rs39.87 trillion in 2021 and Rs32.70 trillion in 2019. Pakistan has a total debt of Rs67.5 trillion as of right now, of which Rs43.4 trillion is domestic and Rs24.1 trillion ($86.7 billion) is foreign. As of March 2024, this has increased by 372% since the country’s income is still insufficient to cover its expenses. It does not, however, include liabilities related to foreign exchange, banks, PSEs, or the private sector. This amounts to an average personal debt load of Rs279,606 for every Pakistani national, regardless of age or gender. This remarkable number was revealed at the Pakistan Economic Survey 2023–2024 unveiling.
According to the Economic Survey, during the first nine months of FY24, the government paid Rs5.5118 trillion in interest on the national debt. Today, Pakistan would have to give up about two-thirds of its GDP, or 63.67 per cent, if it chose to pay off all of its fiscal obligations. The former Minister of State for Finance, Ayesha Ghaus-Pasha, claims, “We are caught in a debt trap.” At 80% of GDP, our debt forces the government to take on new debt in order to pay off existing debt. This unsustainable state of affairs further entangles us in the debt cycle and places undue pressure on public resources. According to her, the government has to implement significant structural changes, efficiently manage spending, mobilize tax resources, promote private investment, and, most importantly, resist the need to quickly boost the economy.
However, the crucial query here is: How do nations bring in this revenue? Mostly from two sources: tax revenue and non-tax revenue. The government has increased its income forecast for this year from Rs12,163 billion to Rs17,815 billion, a 64 per cent rise. To make a stronger argument for a fresh bailout agreement with the International Monetary Fund (IMF) is one of the primary motivations behind it. So far, no government has devised a plan to extricate the nation from its debt trap; rather, they have all endeavoured to cultivate positive ties with the IMF. Pakistan’s dependence on IMF bailouts has resulted in imprudent domestic economic policies that have exacerbated economic difficulties and created long-term dependency. Conditions imposed by the IMF have come under fire for encouraging austerity measures that have a detrimental effect on poverty alleviation and economic growth. Pakistan must create a comprehensive plan that strikes a balance between its immediate financial demands and its long-term objectives for economic growth and development if it is to actually break free from the debt trap.
Now, consider the estimated government spending for this year, which is Rs18,877 billion, a 25% increase over the previous year. It is evident that the anticipated revenue is lower than the budgeted expenses. Debt servicing, which comprises interest and the cost of repaying the loan, is Pakistan’s biggest expense. The government would use Rs975 billion this year to pay down its debt, or 55% of its overall income. The highest spending, after debt payment, is on defence, coming in at Rs2,122 billion, up 18% from the previous year and accounting for 12% of the country’s GDP.
When debt servicing and defence are combined, they account for 67% of Pakistan’s income. Put otherwise, for every 100 rupees earned by the country, 67 rupees are allocated towards debt and defence, leaving a mere 33 rupees for other purposes. Rs5,306 billion is accounted for by the government department and salaries sector. Furthermore, the Public Sector Development Programme (PSDP), which this year will only get Rs14 billion, should be given priority by the government. Even though this is a 52% rise over the previous year, more augmentation is required.
As stated before, Pakistan has a large budget deficit as a result of the large gap between its revenue and expenses. The entire income of Pakistan is Rs17,815 billion. Nevertheless, the amount left over is Rs10,377 billion after the 7,438 billion rupee National Finance Commission (NFC) award—money given to the provinces by the federal government—is subtracted. A net income of Rs11,594 billion is obtained by adding the Rs1,217 billion provincial surplus from the previous year. There is a budget deficit of Rs7,283 billion after deducting the whole expenditure of Rs18,877 billion from this net revenue. In the US dollar, this deficit is equivalent to almost 24 billion dollars. Then, the crucial query emerges: how will this deficit be financed? The simplest answer is to take on more borrowing. As a result, debt is crucial to the nation’s functioning. The Pakistani government is continually dependent on loans since it keeps taking out new loans to pay off old ones. For many years, this unsustainable financial behaviour has been maintained.
Substantial modifications have been made since then that have had an impact on the salaried class. There is no tax for anybody making up to 600,000 PKR a year. Yet instead of the 2.5% tax that was previously in place, those earning between 600,000 and 1,200,000 PKR now have to pay 5% tax. This is a significant increase. A set sum of 30,000 PKR + 15% tax is imposed on incomes between 1,200,000 and 2,200,000 PKR. A set sum of 180,000 PKR + 25% tax is applied to incomes between 2,200,000 and 3,200,000 PKR. Similarly, a fixed payment of 430,000 PKR plus 30% tax is required of individuals making between 3,200,000 and 4,100,000 PKR. There is a set sum of 700,000 PKR + 30% tax necessary for incomes beyond 4,100,000 PKR.
In the broader context, Pakistan must decide whether to maintain the country’s economic stability or to keep paying pensions. The financial limitations of Pakistan make the existing pension plan unsustainable over the long run. Therefore, in order to support pensioners without endangering the country’s financial stability, the government must come up with creative and well-thought-out plans. These could include establishing public-private partnerships to fund infrastructure development and community-based services for the elderly, broadening pension fund collections through investments in innovative technologies and guaranteed income pensions, and investigating debt management strategies like debt-for-equity swaps to lessen the burden on the pension system. Even though it is controversial, this strategy captures the tough economic realities Pakistan must face.
The tax burden in Pakistan is considerable, with a target of Rs12.97 trillion. Regretfully, the fields of health and education are still neglected. Pakistan’s current literacy rate is 62.8%, which is much lower than what is considered acceptable. With barely 1.5% of its GDP going to education, the nation’s future development is seriously threatened. The healthcare sector receives a meagre 1% of GDP, which is an equally inadequate amount. By comparison, defence receives 12% of the budget, which emphasizes the misaligned priorities. Being deeply indebted restricts Pakistan’s sovereignty since debtor nations sometimes lack the ability to make independent decisions. Pakistan’s growth will not accelerate if this debt cycle is not broken, exports are not increased and intellectual capital and human resources are not invested in.
The writer is a faculty member in the Department of Political Science at Kohat University of Science and Technology (KUST).
