Right Word | Why is Pakistan’s Economic Revival Faltering?
As Pakistan continues to confront its prolonged struggle for economic recovery, it is compelled to reassess the systemic inadequacies entrenched within its governance framework, where chronic corruption has become a defining feature
Today’s Pakistan can be succinctly described as existing in a state of “perpetual uncertainty". The country faces an unyielding and comprehensive crisis of significant proportions, threatening the very existence of the state and impacting all facets of national life. This situation is manifested through political instability, severe internal security challenges, and governance weaknesses.
The complexities arising from these systemic issues are epitomised by the nation’s ongoing economic unpredictability. Despite receiving substantial financial support amounting to billions from both bilateral and multilateral international creditors over the past year, Pakistan’s economic outlook remains precarious, lacking any meaningful or sustainable recovery. This reality underscores the persistent systemic failures at the upper echelons of a military-dominated ruling structure, characterised by entrenched elite corruption and a continual disregard for necessary structural policy reforms. These elements remain central to Pakistan’s economic policymaking framework, exacerbating its broader systemic issues and perpetuating its prolonged state of uncertainty.
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The mismanagement of Pakistan’s economy has been a persistent issue throughout the nearly eight decades of its history, becoming increasingly pronounced over the last fifteen years. By mid-2022, Pakistan’s economy had entered a steep decline, with the threat of sovereign default on external debt looming large.
This situation was the result of a decade-long pattern of aggressive debt accumulation without any significant economic growth, leading to formidable challenges in fulfilling debt-servicing obligations amid a worsening balance of payments crisis. This crisis triggered severe inflationary pressures that adversely impacted the socioeconomic conditions of the population, making it increasingly difficult for individuals to cover their daily expenses.
The inevitability of Pakistan’s economic crisis can be traced back to its rising debt trajectory, predominantly fuelled by extensive infrastructure projects, particularly those associated with the China-Pakistan Economic Corridor (CPEC). For example, within just two years of CPEC’s launch in 2015, the federal government, under then-Prime Minister Nawaz Sharif, amassed over $35 billion in loans from China and its related financial institutions. This borrowing significantly increased Pakistan’s external debt profile, ensnaring the nation in what experts have referred to as China’s ‘debt-trap diplomacy’.
The growth in Pakistan’s external debt is notable: it rose from $52.4 billion during Asif Ali Zardari’s administration in 2013 to $75.3 billion by the end of Nawaz Sharif’s term in 2017, and further escalated to $110.6 billion under Imran Khan’s government by 2022. As of September 2024, the external debt is estimated at approximately $133.5 billion, reflecting a staggering increase of 154.77 per cent over the past decade. This relentless expansion of debt underscores the systemic economic vulnerabilities that have left Pakistan unable to escape a cyclical reliance on external financing, thereby perpetuating its structural financial difficulties.
Despite ongoing political instability, Pakistan has made several attempts to stabilise its economy over the past two years. Initiatives such as capital injections from international financial institutions like the International Monetary Fund (IMF) and bilateral lenders including Saudi Arabia and the United Arab Emirates (UAE) have been implemented to address economic vulnerabilities. For instance, in June 2023, the IMF approved a $3 billion bailout package aimed at alleviating Pakistan’s balance of payments crisis, which had seen the country’s foreign exchange reserves plummet to a record low of $6 billion—insufficient to cover even two months of essential imports.
Subsequently, in July 2024, the IMF extended a second bailout package of $7 billion within a two-year period, marking the 23rd intervention since 1950. Additionally, major bilateral creditors like Saudi Arabia and the UAE have agreed to roll over their debt obligations for varying durations, with China also consenting to restructure a portion of its loans.
The series of bailouts received by Pakistan underscores its acute economic vulnerability and deep-seated dependence on external financial support to address longstanding structural issues. However, these interventions have largely functioned as temporary solutions aimed at alleviating immediate fiscal pressures. Two interconnected factors exacerbate this ongoing crisis. The first is the widespread prevalence of chronic systemic corruption, while the second involves the misallocation of external economic aid towards military expenditures.
Pakistan faces a significant challenge with endemic corruption affecting all branches of governance, including the executive, judiciary, and military. According to Transparency International’s 2023 Corruption Perception Index (CPI), Pakistan was ranked 133rd out of 180 countries, with a low score of 29, highlighting the widespread nature of this issue. This is further evidenced by the historical fact that no civilian government in Pakistan has ever completed a full five-year term, with nearly all prime ministers facing corruption allegations. Such pervasive corruption has severely compromised the effectiveness of international financial aid, as this assistance often fails to reach essential economic sectors that could drive sustainable recovery.
External creditors have consistently raised concerns about this systemic problem; for example, in 2023, Saudi Arabia, a long-time financial supporter of Pakistan, made its economic aid contingent upon concrete economic reforms aimed at reducing corruption. Following this development, other Gulf Arab nations have also shifted from their previous practice of providing unconditional aid and now commit to extending financial assistance solely in the form of loans or grants tied to strict conditions, with combating corruption being a primary focus.
The second factor contributing to the ongoing crisis is the disproportionate allocation of the budget to Pakistan’s military establishment, even in the face of a deteriorating economic situation. For instance, the budget for the Pakistan Army saw a significant increase of 14.35 per cent in the 2024-25 fiscal year, despite the country’s foreign reserves being at an alarmingly low level. This prioritisation diverts essential resources away from critical socio-economic sectors, thereby perpetuating the country’s developmental stagnation. Collectively, these issues highlight the structural barriers that render international financial aid inadequate in addressing Pakistan’s entrenched economic vulnerabilities and achieving sustainable economic stabilisation.
As Pakistan continues to confront its prolonged struggle for economic recovery, it is compelled to reassess the systemic inadequacies entrenched within its governance framework, where chronic corruption has become a defining feature. This situation necessitates heightened accountability from the Pakistani establishment, particularly from international lenders such as the IMF. These institutions must urge Islamabad to enact long-overdue structural reforms, which include robust anti-corruption initiatives and mechanisms to prevent the misallocation of financial aid from essential socioeconomic sectors to military expenditures.
Only through such measures can transparency be fostered, fiscal discipline restored, and a pathway created for the country’s sustainable economic recovery from its current predicament.
The writer is an author and columnist and has written several books. His X handle is @ArunAnandLive. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.
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