Is Pakistan’s Economy on the Verge of Collapse?

No, it is not. Pakistan has slow growth but that’s not the same as collapse. On the other hand, rapid growth is not at hand, and there are troubling signs.

I quote below a recent World Bank report:

Urgent Structural Reforms Can Revive Pakistan’s Economic Growth

Pakistan’s economic growth will decelerate to 3.4 percent in FY19 and 2.7 percent in FY20, as fiscal and monetary policies are tightened to address macroeconomic imbalances. Domestic demand is expected to contract while at the same time export growth will be gradual. On the supply side, services growth, which has been leading growth in the past, is projected to decline to 4.4 percent in FY19 compared to 6.4 percent in FY18. The agriculture and industrial sectors will also grow significantly lower in FY19 and FY20.

Growth is expected to recover to 4% in FY21 as structural reforms take effect and macroeconomic conditions improve. Remittances flows are likely to support the current account balance next year. A more stable external environment will also support a pickup in economic activity starting from FY21. The trade deficit is projected to remain elevated during FY19, but to narrow in FY20 and FY21 as the impacts of currency depreciation, domestic demand compression, and other regulatory measures to curb imports set in.

“Pakistan’s growth must be driven by investment and productivity, which will put an end to the boom and bust cycles that affect the country every few years,” said Illango Patchamuthu, World Bank Country Director for Pakistan. “It is entirely possible for Pakistan to transform its regulatory environment and reduce the cost of doing business. On the revenue front, reforms to improve tax administration and widen the tax base are critical. Over the adjustment period and beyond, actions outlined in the recently announced Ehsaas Program can protect the poor and vulnerable through social safety nets and safeguarding public spending on health and education.”

In other words, Pakistan’s economy is not collapsing or crashing. It is just growing very slowly. India is growing at around 6–7%. Makes a very big difference, but Pakistan is not collapsing.

In contrast, Bangladesh is doing well. Here is what the World Bank says about Bangladesh:

Bangladesh Development Update: Regulatory Predictability Can Sustain High Growth

Bangladesh economy continues to be among the fastest growing economies in the world, thanks to stable macro and export-oriented industry-led growth.

In other words, India and Bangladesh are doing much better than Pakistan. But, Pakistan is not crashing - it’s just growing slower, at rates that India had in the 1970s.

Don’t rule out the possibility that in 5 years Pakistan begins to grow at higher rates. That will not put it ahead of India, which has an enormous lead and a much better economic system. Bangladesh has also figured out its growth plan. Pakistan may also do it in the medium term.

Update September 2019

It’s not going well for Pakistan. IMF SOS mission to arrive in Pakistan

International Monetary Fund (IMF) is sending its SOS (Save Our Soul) mission to Pakistan for suggesting ways to the cash-strapped government to curtail the budget deficit being faced by the country.The IMF expressed concern over Pakistan’s economic performance in the first two months and is sending its SOS mission to Islamabad.

Pakistan rupee has been falling. It’s now over PKR 156 = $ 1. Pakistan is in for a tough economic time. Exchange Rate Average (US Dollar, Pakistani Rupee)

It’s not a collapse. But, Pakistan is yet to find a path to financial stability. This is not an easy task, given where Pakistan was. Let’s see where they are in three months - by the end of 2019.

Update October 3, 2019

There is a news report that says: Pakistan’s army chief holds private meetings to shore up economy

Pakistan’s already powerful military is taking an even greater role in running the country as the economy stumbles.

Army chief Qamar Javed Bajwa has privately met top business leaders to find ways to bolster the economy, according to people familiar with the matter. The three meetings Bloomberg is aware of took place this year at heavily guarded military offices in Karachi, the financial capital, and Rawalpindi, a northern town that houses the army’s headquarters.

That’s bad news for Pakistan.