Pakistan’s ever-present economic crisis primarily stems from its external debt, roughly $131 billion owed to various multilateral organizations, Paris Club nations, private and commercial lenders, and China.
This debt grew from several factors, including excessive borrowing, slow growth, weak exports, and currency depreciation. The weakening of the national currency, in particular, has fueled inflation, which rose from 2.5% in 2015 to 29.18% in 2023, significantly higher than the regional average of 5.1%. Another key reason for inflationary pressures has been expansionary fiscal and monetary policies of successive governments, which sought to boost the economy but placed heavy burdens on foreign exchange reserves.
Presently, Pakistan’s industrial growth is frozen due to a persistent energy crisis, with high tariffs nullifying any competitive edge the country might have compared to its neighbors. Apart from hefty capacity payments, most of the country’s energy is produced from imported petroleum products, which are expensive and prone to price volatility. It is only in recent years that the government has sought to address this issue with the introduction of renewables, but the pace of implementation has yet to match the country’s requirements. Repeated attempts at economic revival have also been stalled due to political instability, as frequent changes in government hamper good governance, while political unrest discourages foreign and domestic investor confidence.
The resulting inconsistency in economic policies, coupled with budgetary constraints, has left a persistent budget deficit that only leads to more borrowing, leaving the country on the brink of sovereign debt crises. The resurgence of terrorism after the Afghan Taliban’s return to power has also disrupted economic activities, further deterring foreign investment, and damaging infrastructure, collectively contributing to economic and financial instability. This perfect storm has left a majority of Pakistanis financially stressed, boosting national unhappiness and frustration that, from time-to-time, erupts in the form of protests, strikes, riots, and violence. The prevailing conditions, spanning over 5 years at this point, have damaged the public’s confidence in government, which is unable to even offer any relief as bailouts from external partners come attached with ever-more stringent conditions that only heighten the public’s anger. In recent months, the country’s macroeconomic indicators have improved, raising hopes of a trickle-down effect that will help the common man. Whether the public is willing to wait for this, however, could go a long way in determining how much pressure the government would remain under in the months to come.