With differences over the J&K issue, Pakistan is threatening to close its airspace to India and ban use of Pakistan land routes for Indian trade to Afghanistan, besides others.
In this backdrop, here is an overview of the state of the Pakistan’s economy.
How has Pakistan’s growth rate been?
According to the World Bank, Pakistan’s GDP stood at $254 billion at the end of 2018; for India, the figure was $2.84 trillion.
In other words, Indian economy is more than 11 times Pakistan’s last year.
Also, if India grows at 7% in 2019, it would add almost $200 billion in just one financial year or almost 80% of Pakistan’s 2018 GDP.
Pakistan’s economy has had several fluctuations, but on the whole it has grown at an average of 4.3% between 2000 and 2015.
How is Pakistan’s economy at present?
Pakistan’s economic momentum is fast slipping.
It is expected to grow at less than 3% in both 2019 and 2020, according to the International Monetary Fund (IMF).
To make matters worse for the average Pakistani, slower growth has not decreased the sharp rise in retail inflation, which was close to 9% in May 2019.
Also, the Pakistan government’s fiscal balance (similar to the ‘fiscal deficit’ in India and representing the overall level of borrowing by the government) has been rising.
It is already at 8.9% of the GDP, reportedly the highest in almost three decades.
Owing to the weak state of the economy, Pakistan’s exchange rate has continued to fall.
From levels of 140 to the US dollar in the middle of May, 2019 it has fallen to nearly 157 currently.
Pakistan has a questionable record of borrowing money to sustain itself.
As of March 2019, the country’s outstanding debt was more than $85 billion (approximately 6 lakh crore in Indian rupees).
It has taken loans from a very large number of countries in Western Europe and the Middle East. Its largest creditor is China.
Apart from individual countries, Pakistan has also taken substantial loans from a whole host of international institutions.
In May 2019, Pakistan reached out to the IMF for the 23rd time in its existence, seeking a $6 billion bailout. Click here to know more.
The Pakistan government’s revenues must go up by a whopping 40% in this financial year (2019-20) to meet the IMF’s loan conditionalities.
What ails Pakistan’s economy?
The economic policies and defence of an overvalued exchange rate fueled consumption and short-term growth in recent years.
However, these steadily eroded macroeconomic buffers, increased external and public debt, and depleted international reserves.
There are also some structural weaknesses that have never been addressed.
These include weak tax administration, difficult business environment, inefficient and loss making SOEs (state-owned enterprises), amid a large informal economy.
The IMF has warned that current growth prospects would be insufficient to meet the needs of a rapidly growing population.
It has said that without urgent policy action, economic and financial stability could be at risk.
