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Challenges and prospects of Pakistan’s economy

The present economic situation presents some opportunities for Pakistan. But the country also has some serious long-term challenges. Unless the long-term challenges are decisively tackled, such opportunities will only lead to sporadic bursts of growth rather than a sustained upward trajectory. Some of the challenges and prospects faced by Pakistan’s economy are as under:

  1. Mounting debt
  2. Rising imports, declining exports
  3. Excessive taxation and regulations
  4. Lack of political consensus
  5. Low savings, consumption-oriented society
  6. Lower investment and tax collection
  7. Increased government borrowing
  8. Shrinking share in world trade
  9. Governance and implementation weaknesses
  10. Uncertainty due to lack of continuity of policies
  1. Development of ‘can-do’ mentality
  2. Building of human capital
  3. Use of technology
  4. Young labor force
  5. Devolution and decentralization
  6. Improved energy and security situation

The next ten years are very crucial as they could either ‘make or break’ Pakistan’s economy. Pakistan was predicted to be world’s fastest growing Muslim economy in 2017 ahead of Indonesia, Malaysia, Turkey and Egypt. Despite rising economy, Pakistan is still hampered by image problem. Pakistan needs to move along with structural reforms by locating root causes of the problems and challenges its economy faces.

Interest Rates

Perhaps the only thing going right in Pakistan presently is the interest rate, which is 6 percent for the last couple of years. Investors find it cheap to borrow money and invest in setting up the business infrastructure; public choose to spend money resource because saving is not feasible as the return in the form of interest rate is low. Thus, the borrowing, investment by firms and the spending tend to increase the demand levels in the economy which will create a huge demand for labor force, enhancement of production level i.e. GDP and improve the standard of living of the people.


For the past four years, Pakistan has witnessed 81 percent rise in tax revenue, which is, seemingly, a big plus. Last year’s budget showed a 5.4 percent growth in GDP, which is highest and the first time in over a decade. Allowing Federal Board of Revenue (FBR) to work as an independent, impartial, transparent, accountable and professional outlet will surely make this core institution a modern, effective and efficient tax administration. Hence, this will induce taxpayers’ confidence in FBR, which will lead to increase in tax collection in an equitable and fair manner. Eventually, the greater the amount of finance available, the higher the chances of it being allocated for the infrastructure development (roads, telecommunications, water, sewerage). This will help create jobs, generate income for the millions and trigger economic activity.


Human Capital

With the 10th largest labor force in the world, Pakistan has important strategic endowments and development potential. One of Pakistan’s key strengths is the demographic bulge especially growing proportion of young adults. Pakistan has capacity to send across large number of young unskilled/semi-skilled people. Having over 30 million plus population in the age group of 25-35, Pakistan can put this valuable asset by imparting training in different technical fields to respond market needs abroad.

Pakistan is currently passing through a demographic transition, which has resulted in a ‘youth bulge’ (63% of our population comprising of youth, 69 million aged below 15) and an increase in the working-age population as a share of the total population. To reap the ‘demographic dividend’ of this change, the economy needs to provide education and create productive and remunerative employment for young workforce entrants. Foreign entrants such as Uber and Careem, through their entry, have acknowledged the economic potential of a nation with young population. Moreover, innovation through digitization and entrepreneurship are playing their part in human capital development.


Due to the emergence of 3G and 4G, the size of e-commerce market, one of the most important drivers of a digital Pakistan, is expected to grow up to US$1 billion by 2018. Pakistan is making good progress on Business-to-Business (B2B) front as software industry aims to achieve the goal of US$5 billion export mark by year 2020 through software development and service out-sourcing.

While there is an urgent need to fix pressing challenges, more deep-rooted reforms are required to develop and attract talent to serve in the public sector and businesses. Instead of politicians, the community leaders, academics and intellectuals should come forward and play their role in societal transformation.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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