Aamir Qureshi—AFP
Pakistan’s perennial political instability has only been made worse by its economic crises—and there is no end in sight to either problem. Citizens are suffering from backbreaking inflation, bolstered by a weak currency and precariously low foreign reserves. Experts all agree that resolving the situation requires massive reforms, starting with the country’s taxation sector; Pakistan’s tax-to-GDP ratio has stuck at around 10.3 percent for several years and must rise to at least 15 percent to achieve sustainability. The country also needs to attract foreign investment, whether through privatizing loss-making state-owned enterprises or increasing ease-of-doing business—both tall asks, as successive governments have failed to achieve the desired goals.
But while the economic crisis has been looming for several years, its pace has been expedited by the mis-governance and political conflict the country has witnessed since 2017. The past two years have also seen a resurgence of terrorism, discouraging investors from seeing Pakistan as a viable option. All of this occurs as the country reels from massive debt obligations, which make it difficult to run government affairs, as almost the entirety of generated revenue goes to debt servicing. According to the State Bank of Pakistan, Pakistan’s external debt and liabilities stood at $124.3 billion in June 2023, a decline from $130.6 billion in December 2021, but still far in excess of the country’s ability to repay.
Pakistan’s major multilateral creditors include the World Bank ($18 billion); the Asian Development Bank ($15 billion) and the IMF ($7.6 billion). It also owes smaller amounts to the Islamic Development Bank and the Asian Infrastructure Investment Bank. While several of these loan payments can be rolled over—and have in the past—it merely pushes the problem down the road, and does little to correct the core economic problem. What the country needs above all else is political stability—with an elected government with a clear mandate—if it has any hope of emerging out of the prevailing crisis. Whether or not our political leaders possess the wherewithal to achieve this remains to be seen.