From PSX highs to debt traps: Pakistan’s economic reality in 2024

The year 2024 marked a transformative yet tumultuous chapter for Pakistan’s economy, blending breakthroughs with setbacks. From record-breaking stock market performance to persistent inflation and systemic issues, the economic narrative reflected both resilience and fragility. Shaped by crucial policy decisions, global trends and structural challenges, the year encapsulated a complex journey of growth amid volatility.

One bright spot was the Pakistan Stock Exchange (PSX) hitting record highs. Improved investor sentiment and foreign inflows buoyed the benchmark KSE-100 index, reflecting optimism over macroeconomic stabilisation. Progress on the International Monetary Fund (IMF) front played a significant role, with stringent reforms beginning to yield results, narrowing the fiscal deficit and stabilising foreign exchange reserves.

Despite these gains, structural challenges persisted. The tax-to-GDP ratio remained low, corruption and inefficiencies plagued public institutions and political instability hampered economic decision-making. Frequent turnover of key policymakers further complicated long-term planning.

Former finance minister Miftah Ismail offered a grim assessment, accusing the government of failing to meet IMF commitments and implement necessary reforms. “This government has done nothing to rise up to the challenges facing our economy,” he said, listing unfulfilled promises such as pension reforms, taxation of shopkeepers and reducing government ministries. He criticised the administration for prioritising political survival over economic measures.

Debt remained a pressing concern. External debt exceeded $130 billion, creating immense repayment pressures. Domestic debt also burgeoned due to fiscal shortfalls and borrowing. “We are in a debt trap where net governmental revenues after taxes are less than the interest on the debt,” Ismail noted, urging measures to widen the tax base and rationalise fiscal policies.

Agriculture emerged as a rare success, growing by 6.3 per cent in FY24. Wheat production surged 11.6 per cent, cotton rebounded 108.2 per cent, and rice grew 34.8 per cent, driven by favourable weather and policy interventions. This performance contributed to a modest GDP growth of 2.5 per cent, though systemic issues like low productivity and inadequate investment persist.

Rupee stability and monetary policy

The rupee displayed intermittent stability, closing the year at around Rs280 to the dollar, aided by tighter monetary policies and reduced speculation. Measures like anti-smuggling initiatives narrowed the gap between interbank and open-market rates. Sana Tawfiq of Arif Habib Limited credited these efforts with maintaining manageable deficits and stabilising the currency.

The State Bank of Pakistan (SBP) played a crucial role, keeping interest rates high to curb inflation, which eased from alarming peaks. In June, the Monetary Policy Committee (MPC) reduced the policy rate by 150 basis points (bps) to 20.5 per cent, reflecting easing inflationary pressures. Economist Ammar Habib Khan commended the SBP’s efforts but noted high rates earlier in the year dampened industrial activity.

IMF engagement: a necessary lifeline

The country’s engagement with the IMF defined 2024. Fulfilment of IMF conditions facilitated financial inflows, stabilising foreign exchange reserves from a precarious $4 billion. However, reliance on IMF programmes underscored the country’s inability to generate sustainable growth independently. Experts stressed the importance of structural reforms to reduce this dependency.

Experts agree that sustainable recovery hinges on overdue reforms. Dr Khaqan Hassan Najeeb outlined a roadmap focusing on fiscal consolidation, energy sector reforms, and privatisation of state-owned enterprises (SOEs). He criticised the government’s inaction, particularly regarding entities like Pakistan International Airlines (PIA). “The government’s reluctance to act has thwarted privatisation,” he said, lamenting the absence of advertisements for utility company sales.

The energy sector’s inefficiency remains a significant drag, contributing to high circular debt and unaffordable tariffs. Reducing technical and non-technical losses and rationalising government expenditures are essential.

While macroeconomic indicators improved, ordinary Pakistanis faced harsher realities. Poverty rates rose from 40.2 per cent in FY23 to 40.5 per cent in FY24. Inflation, though lower than its peak, continued to erode purchasing power, and high tax rates stifled growth. Dr Najeeb highlighted the need for inclusive policies to address challenges like inadequate education and high stunting rates.

A glimpse into 2025

Looking ahead, experts predict GDP growth of 2-3 per cent in 2025, with inflation falling to single digits. Achieving these targets will require disciplined fiscal management and meaningful reforms. Khan emphasised reducing subsidies and investing in productive sectors. Ismail advocated for privatisation, empowered local governance, and rationalised expenses to drive sustainable growth.

The lessons of 2024 are clear: Pakistan must use the breathing room provided by the IMF to address structural deficiencies. “Authorities need to focus on deregulation, private sector participation, and finding new growth engines,” said Dr Najeeb. Without significant changes, Pakistan risks remaining trapped in a recurring pattern of crises and external dependence.

The writer is a Geo.tv staffer.