Why is Pakistan Facing Major Economics Challenges?

Pakistan faces major economic problems, both internal and external in nature. These challenges are rooted in longstanding structural issues, such as weak governance, political instability, poor infrastructure, and a low tax-to-GDP ratio, which have hindered the country’s ability to attract foreign investment and for domestic businesses to grow and compete in global markets. Additionally, Pakistan has been facing a balance of payments crisis, energy crisis, security concerns, and the COVID-19 pandemic, all of which have contributed to the country’s economic challenges. Addressing these challenges will require significant reforms and investment in areas such as governance, infrastructure, taxation, and energy, as well as a focus on attracting foreign investment, promoting exports, and creating job opportunities, while also addressing the country’s social and environmental challenges.

Instability of Political Situation: 2023

The current political situation in Pakistan is complex and dynamic, with multiple actors and factors influencing the country’s political landscape. In March 2021, Pakistan’s Prime Minister Imran Khan faced a vote of confidence in the National Assembly after his party lost a Senate election. He sought the vote himself and received the support of 178 members, securing his government’s continued hold on power. However, the opposition continued to criticize his policies, and the vote highlighted the ongoing political turmoil and challenges facing the government, including a struggling economy, rising inflation, and a deteriorating security situation.

However in last April Prime Minister Imran Khan Govt end in the result of No-confidence vote in parliament. Opposition leader Shahbaz Sharif with his coalition parties establish a new govt and become Prime minister of Pakistan. Now the crisis faced by Imran khan like foreign reserve was in front of Shahbaz Sharif. During PTI national Govt every political party criticized on PTI Govt and demanding new election, After coming to power, the PDM retracted from his statement. In other side Chairman PTI Imran khan dissolve assembly of Punjab and KPK. All this leads to political instability in Pakistan economy.

After Covid-19 Pakistan economy also faces crisis, summer catastrophic floods, Inflation due to bad governance is also backbreaking, rupees value has fallen sharply due to shortage of foreign reserve, exports fall and import short due to low level of reserve. Govt has only one month import bill reserve. These are internal factors however external factors are Russia and Ukraine war leads to rising of fuel prices. Pakistan try to tackled all these crises, taking loan from IMF and other friendly countries like Saudi and Gulf countries friends. Pakistan all together $73 Billion payback till 2025. It seen impossible without debt restructuring.

Monetary Policy

Monetary policy refers to the actions taken by a state bank or other monetary authority to regulate the supply of money and credit in an economy. While monetary policy can help stimulate economic growth and stability, it can also lead to challenges if not implemented properly. Here are a few ways that monetary policy can lead to economic challenges:

• Inflation: If a state bank pursues an expansionary monetary policy, it can lead to an increase in the money supply and lower interest rates, which can stimulate borrowing and spending. However, if this expansionary policy is not balanced with appropriate controls, it can lead to inflation. Inflation can reduce the purchasing power of consumers, erode the value of savings, and ultimately lead to economic instability.
• Interest Rates: A state bank can influence interest rates through monetary policy. Lowering interest rates can stimulate borrowing and spending, but it can also lead to excessive borrowing and risk-taking. Higher interest rates can slow down economic growth, making it more difficult for businesses to access credit and expand.
• Exchange Rates: Monetary policy can also impact exchange rates, which can have a significant impact on international trade. If a country’s state bank pursues an expansionary monetary policy, it can lead to a depreciation of the currency. This can make exports more competitive, but it can also lead to higher import prices, which can lead to inflation and reduce the purchasing power of consumers.

Overall, monetary policy can be a powerful tool for promoting economic growth and stability, but it must be implemented carefully to avoid unintended consequences. State banks must balance the need for stimulation with the risks associated with excessive borrowing, inflation, and asset price bubbles.

Poor Infrastructure

Pakistan is a country with a rapidly growing population and a developing economy, but its infrastructure remains a significant challenge. Inadequate infrastructure has been a major obstacle to economic growth in the country, hindering trade, limiting access to services, and impeding the mobility of people and goods.

One of the most significant challenges facing Pakistan’s infrastructure is the inadequate road network. The country’s road system is plagued by potholes, congestion, and inadequate maintenance, which make it difficult for goods to be transported efficiently. This, in turn, limits the competitiveness of Pakistani businesses and increases the cost of goods for consumers.

Another challenge facing Pakistan’s infrastructure is the inadequate power supply. Power outages are a common occurrence in many parts of the country, which limits the productivity of businesses and makes it difficult for households to access basic services such as lighting and heating. In addition to these challenges, Pakistan’s water supply and sanitation infrastructure is also inadequate. Many people in the country lack access to safe drinking water and proper sanitation facilities, which can lead to the spread of water-borne diseases.

The inadequate infrastructure in Pakistan has been a significant barrier to economic growth, and addressing it will require significant investment and political will. The government of Pakistan has recognized the importance of improving the country’s infrastructure and has taken steps to address some of these challenges. However, much more needs to be done to ensure that the country’s infrastructure can support its growing economy and population.

Natural Disasters

Natural disasters can have a significant impact on a country’s business and economy. Here are a few ways natural disasters can affect a country’s economy:

1. Physical damage to infrastructure and property: Natural disasters such as earthquakes, hurricanes, and floods can cause significant damage to buildings, roads, bridges, and other infrastructure. This damage can disrupt business operations, limit access to markets, and increase the cost of doing business.
2. Disruption of supply chains: Natural disasters can disrupt supply chains by damaging transportation routes, power grids, and communication networks. This can lead to delays in the delivery of goods and services, which can have a ripple effect throughout the economy.
3. Loss of productivity: Natural disasters can also lead to a loss of productivity as businesses and workers are forced to evacuate or deal with the aftermath of the disaster. This loss of productivity can have a significant impact on a country’s economy, particularly if the disaster affects a large portion of the population.
4. Decline in consumer confidence: Natural disasters can also lead to a decline in consumer confidence as people become more cautious with their spending. This decline in consumer confidence can have a significant impact on the retail and tourism sectors of the economy.
5. Increased government spending: Natural disasters often require significant government spending on disaster relief and rebuilding efforts. This increased spending can have a long-term impact on a country’s fiscal health.

Overall, natural disasters can have a significant impact on a country’s business and economy. While it is impossible to prevent natural disasters, governments and businesses can take steps to prepare for them and minimize their impact through disaster planning, emergency response, and insurance coverage.

External Factors

External factors are economic, political, and social conditions or events that originate outside a country’s borders but can have a significant impact on its economy. Here are a few examples of external factors and how they can affect a country’s economy:

1. Changes in global trends: A shift in global demand for a country’s exports can have a significant impact on its economy. For example, if a country relies heavily on exports of a particular commodity and demand for that commodity declines globally, the country’s economy can suffer.
2. Commodity prices: Fluctuations in commodity prices can have a significant impact on a country’s economy, particularly if it is heavily reliant on a particular commodity. For example, if a country relies heavily on exports of oil or minerals, a decline in prices can have a significant impact on its economy.
3. International trade policies: Changes in international trade policies, such as tariffs and quotas, can have a significant impact on a country’s economy. For example, if a country faces increased tariffs on its exports, its businesses may struggle to compete in international markets.
4. Currency exchange rates: Fluctuations in currency exchange rates can have a significant impact on a country’s economy, particularly if it relies heavily on exports. A stronger currency can make exports more expensive, which can lead to a decline in demand for those exports.
5. Geopolitical events: Geopolitical events, such as wars, political instability, and terrorism, can have a significant impact on a country’s economy. These events can disrupt trade and investment, discourage tourism, and increase the cost of doing business.

Governments and businesses need to be aware of these external factors and take steps to prepare for and mitigate their impact. This may involve diversifying the economy, investing in infrastructure, and building strong trade relationships with other countries.