Updated on January 1st, 2023
Businessmen called 2022 the worst-performing year for Pakistan’s economy. The country’s currency fell by 49.31 rupees against the US dollar, and the interest rate rose to 16%, the highest since 1998-99.
In addition, inflation is in double digits while the Consumer Price Index (CPI) currently hovers around 25%. In the first five months of the fiscal year 2023, the Sensitive Price Index (SPI) averaged around 28%.
The textile industry and its allied sectors were the biggest victims of the recession in 2022; Agriculture, importing materials-based industries, and cars. All this led to fear of high unemployment in the country.
“Under these circumstances, it is time for the political parties, before the 2023 general elections, to agree on an ‘economy charter’ for at least 15 years, so that the business community and the masses are aware of where we are heading,” said Pakistan Business Forum (PBF) CEO.
Structural inflation and currency depreciation pose their own set of challenges for the government. He pointed out that the high rate of politics at the global level is exacerbating the situation.
“We cannot afford a free-floating (exchange rate) policy because we are not a big economy. We need a bailout to strengthen our rupee which is a key factor in starting the economic activity in the country,” Jawad added.
“2022 has been a turbulent year for economies around the world due to Covid-19, global conflicts, and climate change,” said Abid Qayyum Soleri, Executive Director of the Sustainable Development Policy Institute (SDPI).
He noted that “in the case of Pakistan, inaction, long-standing structural weaknesses, and political stagnation exacerbated the economic crisis”.
“The good news for 2022 is that despite Pakistan’s underlying economic weaknesses, Pakistan has not defaulted on its external debt obligations. The bad news is that we avoided default not because of the strength of our economy but because of our debt structure,”
“The point to think about for the next year is the need to maintain a delicate balance in our relationship with China, to which we owe 30% of our debt, and our relations with Saudi Arabia, to which we owe about 20% of our debt, and the United States, which could help soften the tone and the substance of the IMF. Striking this delicate balance remains a daunting task.”
The chief executive of PBF called on the country’s policymakers to “find a possible solution to liquidate the country’s debt. Without it, our economic growth will continue to deteriorate, as the burden of repaying foreign debt and paying interest in Pakistan is increasing. The country continues to borrow, mainly to pay back old contributions and financial account deficit current (CAD).
“However, the important question remains unanswered; will leading economies like the US support us in repaying (or writing off) our debts,” he mused, adding that Pakistan’s total debt is about $125 billion and that’s certainly a lot of money for us but not for China or the US.
On the other hand, some Chinese and American companies are more than three times as large as our total debt. Jawad pointed out that the value of China Petroleum and Chemicals Corporation is $326 billion, and that of Walmart Inc in the US is $570 billion.
Former South Asian Association for Regional Cooperation (SAARC) Regional Adviser Jahanara Woto lamented, “We will remain in the vicious circle of the IMF and other financing agencies, and therefore, our rupee will be weaker. The conditions imposed by these donor agencies constantly suppress the currencies of underdeveloped countries.
“At the same time, in order to increase our tax revenue, market traders across the country must be involved in the tax network using the flat tax method,” she said.
Watto also stressed that the political parties must understand that Pakistan cannot afford a new direction of the economic policy every five years.
She explained that “the only way forward for 2023 is to reduce non-essential imports and dependence on oil, increase energy conservation, and sell strategic stakes in profitable state-owned companies to increase foreign exchange,” adding that more incentives will have to be created in order to increase production of materials.