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Pakistan’s Economic Crisis: What Went Wrong?
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The pulse | economy | south asia.
The country is currently running on foreign loans taken on high rates of interest. It will have to repay $80 billion in the coming three years.
Farmers clear out debris in an apple orchard damaged by floods ahead of the harvesting season in Quetta, Balochistan, April 10, 2023.
In March-April, the Pakistan government set up distribution sites across the country to provide s asta aur muft aata (low-cost and free flour) to people to ease their burden amid spiraling prices and the ongoing economic crisis in the country. But instead of doing good, the initiative caused trouble in several places where stampedes broke out, killing and injuring people.
Pakistanis are putting their lives at risk to collect something as basic as a sack of flour. It illustrates how the rising cost of food and other necessities is driving desperation and impacting the masses.
With inflation running at over 30 percent – a 50-year high – putting food on the table for the poorest, who comprise one-third of Pakistan’s population, has become harder than ever before.
When the recent stampedes over food flooded social media, so did the deeper questions: How did the country end up here? What does this economic crisis mean for the majority of the Pakistani people and for Pakistan’s international projects, especially those with China under the China-Pakistan Economic Corridor (CPEC), which Pakistan considers vital for its future economic growth?
Pakistan’s current GDP, per capita income, and GDP growth are the lowest in its neighborhood ; only war-torn Afghanistan’s economy is weaker. Likewise, its unemployment and inflation rates are one of the highest in the region. The Human Development Inde x, which measures a country’s achievements through three basic dimensions – health, knowledge, and standards of living – placed Pakistan in the 161st position out of 185 countries in 2022. In other words, Pakistan is among the 25 countries with the lowest human development in the world.
The country’s current situation has multiple causes, including overall poor economic management, corruption, and excessive spending on defense and the armed forces. In a country where half the population is under the age of 22 , investing in the education and technical skills of youth can generate opportunities for a more sustainable economy.
Many also associate the current economic crisis, especially the rise in food staples, with last year’s floods, which caused extensive damage to agricultural land, livestock, thousands of kilometers of road, and other infrastructure. This is partially right, as inflation touched a record high after the floods in August last year. But the war in Ukraine also halted grain supply to a number of countries, including Pakistan, resulting in a sharp increase in prices of foodgrains.
But the situation was not stable even prior to these crises. According to a World Bank report on inflation and development in Pakistan, food-related shortages and transportation challenges caused by the floods and the war in Ukraine that impacted essential grain imports significantly contributed to the inflation, but so did a hike in fuel and oil subsidies. Pakistan heavily relies on imported oil. A constant decline in the value of the country’s currency has resulted in much higher tariffs with every import of oil.
The unceasing decline in the value of Pakistan’s currency over the months has been triggered by the country’s inability to repay its foreign debt . Pakistan is essentially running on foreign loans, an economic model that only leads to borrowing more, which eventually results in bankruptcy. Between February 2023 and June 2026, Pakistan will have to repay around $80 billion in foreign debt.
As of December 2022, Pakistan held $126.3 billion in external debt and liabilities, of which 30 percent is owed to China. As much as the Chinese government has supported Pakistan’s infrastructure development through CPEC, which Pakistan is determined to benefit economically from in the future, for now, the federal government is having to repeatedly turn to the Chinese for refinancing and a rollover of debts .
Although the Chinese government and commercial banks have helped Pakistan by deferring debt repayment or rolling over debts in the past, it is hard to predict if China will continue to do so.
So far, of the numerous projects agreed upon under CPEC, only a few have been completed. Chinese frustration over endless delays in project completion, halting of projects, and security threats to its nationals working in Pakistan has resulted in hesitation to invest in new projects. Yet Pakistan remains one of the biggest beneficiaries of Chinese loans.
Many blame China for the high interest it charges on loans that have burdened many developing countries including Pakistan. Instead of the promised economic growth through CPEC, China’s loans may have worsened Pakistan’s economic crisis. But it is still too early to conclude whether CPEC debts will drain the Pakistani economy or open up opportunities for growth in the future.
For now, transparency over government spending is the need of the hour, along with restructuring the country’s economy from one that overspends on defense institutions and excessively relies on foreign debt with high interest to a model that is sustainable.
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2023: A year of two economies for Pakistan
As the scent of elections sweetens the air in 2024, will political parties harness this fragile momentum or fall back into the comfortable embrace of short-term fixes?
Pakistan was tied to a rollercoaster ride in the year 2023, grappling with the sudden highs and lows of grave economic uncertainty, coupled with soaring inflation and depreciating currency, tearing apart people's lives.
The country had already been reeling from the aftermath of the 2022 floods that washed away swathes of agricultural land, affecting millions of lives. But amid all that chaos, the nation also saw a ray of hope.
This isn't your conventional story of doom and gloom. It's about a nation struggling against a perfect storm of challenges, some homegrown, some imported. It's about a people teetering on the edge of economic precarity, yet finding ways to defy gravity.
It's about a government trying to acquire loans from other countries while dealing with angry citizens and uncertain politics.
In this special issue, we'll talk about Pakistan in 2023: farmers facing floods and expensive fertilisers, entrepreneurs making opportunities, and leaders handling money carefully. We'll look at how the International Monetary Fund (IMF) helped, the possibility of money losing value, and some hope in better exports and good cotton harvests. It's a story about Pakistan in 2023—hard times, brave actions, and uncertainty about the future. Is the country heading towards a big problem or about to turn things around? Let's find out.
“The outgoing year was disastrous for incomes and economic activity, as excessive sovereign debt and a perpetual fiscal deficit constrained the government's ability to catalyse growth,” independent macroeconomist Ammar Habib Khan said while speaking to Geo.tv .
In the outgoing 2023, Pakistan encountered economic challenges and political unrest that cast a shadow on its GDP growth. The nation was grappled with various obstacles including rising inflation, fiscal deficits, weak currency, political instability and a decline in capital flows (to name a few) that impeded its economic progress.
• The size of Pakistan’s economy (Gross Value Added at current price) is estimated to be Rs84.07trn in FY23 compared to Rs66.64trn recorded in FY22.
• During the first half of fiscal year 2023-24, the country’s deficit decreased by 85% to $2.6 billion compared with a deficit of $17.5 billion during the same period last year. This is the lowest yearly current account deficit after FY13 ($2.5 billion).
• Total imports during FY23 clocked-in at $60 billion, down 29% year-on-year; while total exports during FY23 clocked-in at $35 billion, down 11% year-on-year.
• During FY23, remittances went down by 14% year-on-year to $27 billion as compared to $31.3 billion in FY22.
• During FY23, net FDI down by 25% year-on-year to $1,456 million compared to $1,936 million in FY22.
• During FY23, Large-Scale Manufacturing Industries (LSMI) output stood at 114.8 (FY22: 128). This marks a 10.3% decline in LSMI output during FY23.
• Average inflation for FY23 clocked in at 29.2% compared to 12.2% in FY22.
• Meanwhile, the GDP for FY23 has been revised. The initial estimate, which indicated a growth of 0.29%, has been revised downward to -0.17%.
“Decades of inefficient, inequitable and impulsive decision making, primarily benefiting political and economic elite, has resulted in one economic crisis after another and 2023 was another hard year. The first six months engulfed Pakistan in a financial crisis — keeping all stakeholders on the edge — wondering if Pakistani policymakers will be able to negotiate and lock in the IMF funds,” Development Economist Maha Rehman said.
PSX’s journey from 40,000 to 62,000 points
Terming 2023 “best” for the stock market, Alpha Beta Core CEO Khurram Schehzad mentioned that within three months, PSX returned the best in over a decade, while it managed to re-secure the title of being one of the best-performing markets globally.
The equities gained 55% in 2023 with 22,031 points up, closing the year at 62,451 points. The market value was up by $9 billion, closing at $32 billion.
2023 was divided into two distinct halves, each telling a unique story.
The first half of 2023 saw Pakistan's stock market facing challenges. Economic difficulties and political uncertainty were key contributors to the subdued market conditions.
The delay in resuming the IMF programme significantly affected economic and market dynamics.
Moreover, the policy rate witnessed a significant 600 basis points increase, reaching a historic high of 22%, making equities less attractive.
However, in the second half — following the Standby Arrangement with the IMF in June — investor confidence rebounded, leading to a resurgence of flows into the market.
Following the IMF support, the SBP received significant inflows/rollovers from friendly countries, boosting the country’s forex reserves to $8.2 billion by July end which bolstered investor interest.
Moreover, the establishment of the Special Investment Facilitation Council (SIFC) to attract foreign direct investment played a significant role in maintaining strong momentum.
Additionally, administrative measures by the authorities aimed at curbing illegal foreign currency and preventing further depreciation of the Pakistani rupee contributed to enhanced investor confidence.
The benchmark KSE-100 index reached unprecedented heights by hitting an all-time high of 66,427 points, which marked a gain of 26,006 (64.3%) since December 2022. After achieving this feat, the market witnessed some profit-taking. Despite this, the KSE-100 index emerged as the fifth best-performing stock market in 2023.
Albeit, the market closed at 62,052 points, gaining 21,632 points (up by 54%) year-on-year.
Another bad year for the Pakistani rupee
The Pakistani rupee has been under pressure for the last seven years. In 2023 the local unit fell 20% against the greenback in spite of some recovery in the last few months. It should be noted that this 20% fall in 2023 is higher than the last five-year average fall of 13% a year and a 10-year average of 8%.
The downward trajectory was driven by the external financing gap, challenging global financial markets. Moreover, local political instability badly affected foreign exchange reserves which mounted pressure on the rupee.
In the first half of 2023 —before the IMF's Stand-by Arrangement (SBA)— the local unit fell by 21% from Rs226 to Rs286 against the US dollar whereas in the second half, it gained 1% from Rs286 to Rs282 post IMF's SBA.
Meanwhile, in the open market, the rupee fell 17% from Rs236 to Rs284 in 2023. In the first half, it declined by 19% from Rs236 to Rs290, while in the latter half, the local currency gained 2% from Rs290 to Rs284 against the greenback.
Tough start, bright finish: Miftah Ismail on 2023’s economic rollercoaster
Pakistan's economy weathered a storm in 2023, according to former finance minister Miftah Ismail, with starkly contrasting halves: "bad from January to June, and better from July to December."
Miftah — while speaking to Geo.tv — painted a vivid picture of the initial hardship. "Until February, the government held the dollar artificially at Rs230 rupees”, distorting the market and hurting remittances and exports. This, he says, triggered a period of "tough times" as Pakistan grappled with "a huge interbank and open market difference between dollar prices."
Furthermore, the delay in securing an IMF loan programme added to the anxiety. "Pakistan constantly tried and failed to secure the IMF programme, increasing the risk of default," Miftah explained, leading to a decline in Pakistani bonds, market volatility, and heightened business uncertainty.
However, a turning point arrived in June. "Shahbaz Sharif, then prime minister, managed to secure the IMF programme," the foreign finance minister — who was sacked from the office to make way for the party stalwart Ishaq Dar — noted, marking a critical shift towards stability. The subsequent caretaker government's bold move to raise electricity and gas tariffs, while unpopular, "improved the state's financial situation," said Miftah, demonstrating a commitment to fiscal discipline.
This shift in direction yielded noticeable results. "The markets believed that the programme's revival shot down the default risk," Miftah observed, leading to a rebound in the stock market, a stabilised currency, and a remarkable recovery in Pakistani bonds.
Looking back, the former finance minister acknowledged the initial struggles but emphasised the positive turn. "The first six months were really bad," he concedes, "but the last six months have been much better."
Can election year, 2024, push past the boom-bust cycle?
Khan was of the view that the rational way forward would be to retool and restructure the economy, and finally undergo painful reforms. “In the absence of any serious reforms, things may only get worse, unless we can get an influx of foreign currency as a function of geo-economic rents, which seems unlikely,” he added.
With elections around the corner, calls are growing for a drastic shift in economic approaches, moving beyond short-term rhetoric and instead prioritising long-term growth and development.
Endorsing the view, Rehman said that in order to go beyond the economic rhetoric, it was important to zoom out and take a long-term view.
“What is it that we need to do now that ten years down the road our projections will look fundamentally different? With the elections coming in, people and political parties must place their trust in competitive policymakers and advisers.
“To do so, the parties must be open to personnel change and must look beyond the usual familial leaders. Once a new government is sworn in, we must start to scientifically alter embedded incentives to stir the economy towards a path of growth and development.
“Take a systems approach instead of planning and pushing for disjoint policies that further entrench and benefit the status quo. Change will be slow and incremental if the right progressive policies are gradually implemented. There is a lot of advice out there on what the right policies are, what sectors should be targeted and how but it is now also time that, given our constraints, policymakers and advisers turn to the theory of second best. Following Stefan Dercon’s advice, given the elite capture and financial limitations, what is it that we can do today to begin altering our underlying economic fabric?”
Arif Habib Limited Head of Research Tahir Abbas shared some key economic and political headwinds which are expected to subside in 2024.
• General elections in February 2024 will be held per the schedule and are expected to clarify the political landscape.
• GDP growth is expected at 3.3% during FY24.
• The current account deficit is expected to be manageable.
• We estimate FY24 and FY25 inflation to clock in at 24% and 12.8%.
• Start of monetary easing cycle from March 2024, reaching 15% till December 2024.
• Administrative steps and improved external flows to stabilise the Pakistani rupee.
Meanwhile, Miftah emphasised the need to learn lessons from the first half of 2023.
“The continuation of the IMF programme is very important for Pakistan, and whichever government comes [in power next], it is important for it to continue the IMF programme because if Pakistan’s ties with the Fund aren’t good, then the risk of default will increase and things will get worse.
“But if we maintain our good ties with the lender and secure a deal, the risk of default will be minimised and Pakistan will slowly progress,” the former finance minister said.
He further highlighted that the biggest issue right now, for the next six months to a year, is containing inflation, and in order to reduce inflation, the government would have to contain the deficit. “If the government is able to manage these two issues, things will fall in place and improvement will be seen in the economic conditions. However, long due reforms will have to be done, and if these aren’t done, the situation will be bad.”
Pakistan's 2023 economic tale was one of two halves. Turbulence remained the order of the first six months, with inflationary fires raging, the rupee hitting new life-lows, and the IMF loan programme hanging in balance. Yet, from the ashes rose a tentative recovery. Be that as it may, stringent policy measures and international support bore fruit. Now, Pakistan stands at a crossroads. As the scent of elections sweetens the air in 2024, will political parties harness this fragile momentum or fall back into the comfortable embrace of short-term fixes?
The answer lies in their willingness to embrace long-term reforms, break away from entrenched interests, and build an economy that works not just for the few, but for the millions yearning for a brighter future. The next chapter of Pakistan's economic story is yet to be written. Now the onus of writing it right lies equally with leaders and people.
World Bank: Pakistan’s Economy Slows Down While Inflation Rises Amid Catastrophic Floods
ISLAMABAD, October 6, 2022 - Pakistan’s economy is expected to grow by only 2 percent in the current fiscal year ending June 2023. According to the World Bank’s October 2022 Pakistan Development Update: Inflation and the Poor , the slower growth will reflect damages and disruptions caused by catastrophic floods, a tight monetary stance, high inflation, and a less conducive global environment. Recovery will be gradual, with real GDP growth projected to reach 3.2 percent in fiscal year 2024.
Poverty in the hardest-hit regions will likely worsen in the context of the recent flooding. Preliminary estimates suggest that – without decisive relief and recovery efforts to help the poor – the national poverty rate may increase by 2.5 to 4 percentage points, pushing between 5.8 and 9 million people into poverty. Macroeconomic risks also remain high as Pakistan faces challenges associated with a large current account deficit, high public debt, and lower demand from its traditional export markets amid subdued global growth.
“ The recent floods are expected to have a substantial negative impact on Pakistan’s economy and on the poor, mostly through the disruption of agricultural production,” said Najy Benhassine, the World Bank’s Country Director for Pakistan . “The Government must strike a balance in meeting extensive relief and recovery needs, while staying on track with overdue macroeconomic reforms. It will be more important than ever to carefully target relief to the poor, constrain the fiscal deficit within sustainable limits, maintain a tight monetary policy stance, ensure continued exchange rate flexibility, and make progress on critical structural reforms, especially those in the energy sector.”
This Update also outlines potential strategies to manage the impacts of high inflation. Inflation in Pakistan is expected to reach around 23 percent in FY23, reflecting flood-related disruptions to the supply of food and other goods, higher energy prices, and difficult external conditions, including tighter global monetary conditions. The Update shows that the high inflation will disproportionately impact the poor.
“While relief measures are needed to cushion the impacts of flooding, it will be critical to ensure that these are targeted towards those most in need,” said Derek H. C. Chen, author of the report . “Pakistan has previously resorted to energy subsidies, but our analysis shows that such measures disproportionately benefit better-off households, while imposing unsustainable fiscal costs. Going forward, the priority should be to tame inflation through sound macroeconomic policies. These should be accompanied by measures to provide targeted relief to those hit hardest by rising prices, including through expanded social protection programs, and to address the distortions that discourage trade and productivity.”
The Pakistan Development Update is a companion piece to the South Asia Economic Focus, a twice-a-year World Bank report that examines economic developments and prospects in the South Asia region and analyzes policy challenges faced by countries. The Fall 2022 edition titled Coping with Shocks: Migration and the Road to Resilience, launched on October 6, 2022, shows that growth in South Asia is dampening due to recent major global and regional shocks including rising inflation; the impacts of the global food, fertilizer and fuel shortages; the economic crisis in Sri Lanka; and the catastrophic floods in Pakistan. It also analyzes the impacts of COVID-19 on migration and the role labor mobility and migration can play in facilitating economic development.
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Pakistan and ADB
ADB helps Pakistan strengthen climate resilience; empower women; and improve institutional capacities, economic infrastructure, urban services, the private sector, public finance, energy, food security, transport, and social services.
Economic forecasts for Pakistan
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- Pakistan's GDP growth is expected at 1.9% in 2024 and 2.8% in 2025 – ADO April 2024
- Pakistan's inflation rates forecasted at 25.0% in 2024 and 15.0% in 2025 – ADO April 2024
- Per capita GDP growth for Pakistan is expected at -0.1% in 2024 and 0.8% in 2025 – ADO April 2024
Figures are based on the latest edition of ADB's Asian Development Outlook, which analyzes economic and development issues in Asia and the Pacific. This includes forecasting the inflation and gross domestic product growth rates of economies throughout the region.
Comparative economic forecasts
The latest available economic data for Pakistan compared to countries in South Asia.
Policy Challenge—Closing a Financial Inclusion Gender Gap
Pakistan has one of the lowest financial inclusion rates for women in the world. While Pakistan’s overall financial inclusion has improved, the gender gap in account ownership more than doubled over the past decade, reaching 32% in 2021. The World Data Lab estimates that, without immediate action, this gap will widen to over 42% by 2030. In a World Bank survey encompassing 135 economies, Pakistan ranked fourth lowest overall, and third lowest in Asia, on female financial inclusion. More than three out of every five Pakistani women remain unbanked.
Pakistani women face multiple barriers when accessing finance. On the demand side, low female labor force participation means that most women lack a steady income stream and are largely dependent on male family members for their financial needs. Social and religious traditions influence gender roles, with women viewed as homemakers rather than breadwinners. The absence of formal income and proper documentation makes it difficult for women to open and maintain standard bank accounts, as banks consider them high risk. Moreover, low literacy levels and insufficient financial education undermine women’s ability to utilize formal banking channels and render them more susceptible to fraud. Rural women are further marginalized, as their access to banks is even more limited due to long distances and commute times.
On the supply side, expanding women’s financial inclusion requires strong will and a prioritized push for legal and regulatory change. New rules must support gender-inclusive finance while easing persistent liquidity constraints in the sector. The central bank’s Banking on Equality Policy is a monumental step in advancing women’s financial inclusion. The Securities and Exchange Commission of Pakistan has also initiated significant steps toward refining the regulatory framework for nonbank finance companies, including microfinance institutions that traditionally target women in Pakistan.
Regulators should continue to play a critical role in providing an enabling regulatory environment. They should continue to influence action by financial service providers to promote gender-inclusive finance and incentivize the country’s financial institutions to integrate a gender focus into the national financial services industry and widen access to digital financial services, including mobile banking, digital wallets, and banks on wheels. Financial institutions can also promote greater gender diversity at their access points and mandate more robust gender-disaggregated data collection and target setting. Commercial banks and fintech enterprises should continue to dedicate time and resources to better understand the needs of women customers and the strategic value of women’s market, organize gender-sensitivity training for their staff, and design women-centric products and services.
Gender-inclusive opportunities for smaller enterprises and microfinance should be expanded further. This can involve credit guarantee schemes, export financing facilities, business development and financial literacy training, tax incentives to banks, and digitalized business registration processes. In addition, the sector would benefit from the continued growth of a gender bonds market to channel much-needed finance to women-owned businesses.
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A coalition government comprising the Pakistan Muslim League (Nawaz) and the Pakistan People's Party took office in February 2024 after the national election delivered a fractured mandate. The Pakistan Tehreek-e-Insaf party of the former prime minister, Imran Khan, forms the main opposition in the lower house of parliament. Given its slim parliamentary majority, the coalition government, which is unpopular, will depend heavily on the military for political support. This will give the military an increasing voice in economic affairs. The election was marked by vote-rigging, and political stability and security will remain tenuous in Pakistan. Intensifying domestic protests will be curbed swiftly by the military. Real GDP growth will be modest in fiscal year 2023/24 (July-June). Pakistan secured a nine-month loan package from the IMF in June 2023, which will help the country to stave off a default on sovereign debt obligations amid persistent balance-of-payments and fiscal strains. We expect the new government to secure another IMF package after March 2024. China will remain a major strategic and financial ally of Pakistan, while relations with India will continue to be strained.
Read more: Pakistan election: a divided polity will breed instability
Read more: IMF deal makes default unlikely for Pakistan
Read more: Pakistan's budget significantly lacks credibility
Featured analysis
Does an improving business environment boost gdp, pakistan election: a divided polity will breed instability, in charts: asia's elections in 2024, economic growth.
| (% unless otherwise indicated) | |||
| 2023 | 2024 | 2025 | |
|---|---|---|---|
| US GDP | 2.5 | 2.2 | 1.5 |
| Developed economies GDP | 1.6 | 1.5 | 1.6 |
| World GDP | 2.6 | 2.5 | 2.6 |
| World trade | -0.9 | 2.8 | 3.5 |
| Source: The Economist Intelligence Unit | |||
Inflation indicators
| (% unless otherwise indicated) | |||
| 2026 | 2027 | 2028 | |
|---|---|---|---|
| US CPI | 2.8 | 2.5 | 2.6 |
| Developed economies CPI | 2.2 | 2.1 | 2.1 |
| Manufactures (measured in US$) | 3.6 | 2.2 | 5.0 |
| Oil (Brent; US$/b) | 76.4 | 73.0 | 70.5 |
| Non-oil commodities (measured in US$) | -1.2 | 1.2 | 1.4 |
| Source: The Economist Intelligence Unit | |||
Forecast updates
Pakistan's ties with saudi arabia will remain strong, pakistan's strategy for development lacks realism, iran-pakistan gas pipeline project revived, quick links.
- Forecast summary
- Market outlook
Financial variables
| (% unless otherwise indicated) | |||
| 2026 | 2027 | 2028 | |
|---|---|---|---|
| US$ 3-month commercial paper rate (av; %) | 4.1 | 3.6 | 3.1 |
| ¥ 3-month money market rate (av; %) | 0.5 | 0.6 | 0.4 |
| ¥:US$ (av) | 120.8 | 118.8 | 114.3 |
| Rmb:US$ (av) | 7.18 | 7.06 | 6.94 |
| Source: The Economist Intelligence Unit | |||
Strengthening Pakistan's readiness for the next crisis
“20 feet of water flooded our village” - “Prices of everyday goods are soaring…we cannot buy enough food.” - “Children are not able to go back to school.” - “Our water is contaminated…we are suffering from diarrhea and skin diseases.”
These troubling accounts, while tragic, have become all too familiar. In just three years, Pakistan has faced the COVID-19 pandemic, the most severe locust outbreak in 30 years, a drought emergency, and unprecedented flooding that submerged a third of the country.
The “new normal” of compounding crises present an unparalleled challenge to poverty alleviation and economic growth. Families are struggling to send their children to school and put food on the table. Prior to COVID-19 and the 2022 floods, about 20.3 million children were out of school . The latest 2023 census now reveals this number is at 25.4 million .
Inflation and an economic crisis on the heels of the pandemic and floods, have rolled back gains on poverty reduction – an additional 7 million Pakistanis live below the poverty line now. 42 percent of the population lives in moderately to highly food insecure households, due to market distortions, inflation, and climate change affecting agricultural production.
The 2022 floods caused unprecedented destruction, affecting 33 million and resulting in US$16.3 billion in recovery and reconstruction needs . As one of the top 10 countries most impacted by climate change, more frequent and intense weather events are expected.
It’s clear. Enhancing capabilities for crisis preparedness and response, while building resilience, is central to Pakistan’s development.
The World Bank recently supported a study on Pakistan’s Crisis Preparedness Gap Analysis in collaboration with government, development partners, non-governmental organizations, and private sector. This diagnostic is part of the World Bank’s new Crisis Preparedness and Response Toolkit , created to address the growing need for stronger crisis preparedness in a world beset with risks. The Crisis Preparedness Gap Analysis assesses and provides recommendations on the preparedness for natural hazards, food insecurity, and health emergencies, across five key components:
Legal and Institutional Foundations
Pakistan has made significant headway in the development of robust policies and plans addressing both ex-ante and ex-post crisis management. Establishing clear financing strategies, identifying financial mechanisms and sources for implementation, and establishing monitoring mechanisms to track progress of key plans, will support the operationalization of the disaster risk management framework. Updating legislation to address overlaps and gaps for roles, responsibilities, and coordination mechanisms at both national and subnational levels, is necessary.
Understanding and Monitoring Risks
The country exhibits a comprehensive understanding of its different types of hazards and risks. A critical next step is to ensure risk assessment data is accessible on a centralized digital platform and build capacities at the local government levels for their application. With climate change intensifying and weather patterns becoming more erratic, accurate forecasts and timely, impact-based early warnings are vital. Last-mile dissemination to communities through multiple channels, utilizing social media, as demonstrated in Cyclone Biparjoy, can support effective response.
Financial Preparedness
Reviewing the government’s outstanding contingent liabilities at both national and subnational levels, and identifying appropriate ex-ante and ex-post disaster risk financing instruments, is crucial. Implementation of a disaster risk financing strategy is urgently needed. A risk-layered approach, including reserve funds, credit options, insurance of public assets, and dedicated risk facilities, will strengthen Pakistan’s financial preparedness.
Primary Response
The development and streamlining of emergency financing and procurement procedures can enable rapid response in emergencies. A GIS-based national-level asset management system on critical infrastructure, along with climate resilient design and business continuity plans, will enhance the resilience of infrastructure. Such measures will help the government to continue service delivery and support families’ access to critical facilities like health care centers and schools. Strengthening local governments with dedicated disaster managers and trained personnel, —including specialized public health experts for disease outbreaks—will bolster Pakistan's frontline response capabilities.
Social and Livelihood Support
During the COVID-19 pandemic and 2022 floods, the National Socio-Economic Registry was successfully used to rapidly identify and provide emergency cash transfers to vulnerable families. Linkages between social protection functions and crisis management can be further institutionalized for timely, shock-responsive social protection. An end-to-end framework and financing to ensure food security will support the protection of the large number of families dependent on agriculture. A coordinated focus on food security is crucial, given Pakistan’s high incidence of malnutrition and stunting. To ensure education continuity, allocation of financial, human, and infrastructural resources under the Pakistan School Safety Framework , is needed.
This report offers a roadmap for enhancing preparedness and safeguarding the country’s future against shocks. The goal: a better prepared Pakistan when, not if, the next crisis arises.
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Pakistan: Five major issues to watch in 2023
Subscribe to the center for middle east policy newsletter, madiha afzal madiha afzal fellow - foreign policy , center for middle east policy , strobe talbott center for security, strategy, and technology , center for asia policy studies.
January 13, 2023
1. Political instability, polarization, and an election year
Politics will likely consume much of Pakistan’s time and attention in 2023, as it did in 2022. The country’s turn to political instability last spring did not end with a dramatic no-confidence vote in parliament last April that ousted then Pakistani Prime Minister Imran Khan from office. Instability and polarization have only heightened since then: Khan has led a popular opposition movement against the incumbent coalition government and the military, staging a series of large rallies across the country through the year.
The struggle for power in Pakistan continues into 2023. While the incumbent government has not ceded to Khan’s demand for early elections, country-wide elections are constitutionally mandated to be held by October this year. It benefits the government politically to hold them off as long as it possibly can as it tries to dig itself out of Pakistan’s urgent economic crisis and its lackluster domestic performance (its diplomatic foreign policy approach has fared better, but that may not matter for elections). The last year has cost it precious political capital, and Khan’s party did very well in a set of by-elections held in July and October. The state has tried to mire Khan and his party in legal cases, relying on a familiar playbook used against opposition politicians in Pakistan, albeit to limited effect, with the courts’ involvement.
Khan’s party still controls two of Pakistan’s four provinces, Punjab and Khyber Pakhtunkhwa (KP), and the incumbent federal government’s (extra-legal) efforts to try to wrest power from it in Punjab, the largest province, have been unsuccessful (thanks to the courts). The year is off to a dramatic start, with Khan’s party initiating the process to dissolve the Punjab and KP assemblies this month to pressure the federal government into early elections.
For politics-obsessed Pakistan, the biggest question remains who will win the next general election. Will former Prime Minister Nawaz Sharif (brother of current Prime Minister Shehbaz Sharif) return to Pakistan to run as the head of his party, the PML-N? Can Imran Khan win on the strength of his popular support, despite his confrontation with the military? Regardless of the outcome, we can say this much given the histories of the main contenders: The direction of the country is unlikely to change.
2. A precarious economic situation
Pakistan’s economy has been in crisis for months, predating the summer’s catastrophic floods. Inflation is backbreaking, the rupee’s value has fallen sharply, and its foreign reserves have now dropped to the precariously low level of $4.3 billion, enough to cover only one month’s worth of imports, raising the possibility of default.
An economic crisis comes around every few years in Pakistan, borne out of an economy that doesn’t produce enough and spends too much, and is thus reliant on external debt. Every successive crisis is worse as the debt bill gets larger and payments become due. This year, internal political instability and the flooding catastrophe have worsened it. There is a significant external element to the crisis as well, with rising global food and fuel prices in the wake of Russia’s war in Ukraine. The combination of all these factors has spelled perhaps the greatest economic challenge Pakistan has ever seen. Yet the government has been mired in politicking, and the release of a $1.1 billion loan tranche from the International Monetary Fund (IMF) remains stalled as Islamabad has pushed back on the IMF’s conditions. The government has now resorted to limiting imports and shutting down malls and wedding halls early, small measures that fail to adequately address the problem.
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Pakistan may end up avoiding default for the time being with IMF help and loans from friendly countries, especially Saudi Arabia and other Gulf nations. But those won’t address the clear underlying malaise of the economy – and the fact that something fundamentally will need to change, in terms of how much the economy produces versus how much it spends, to avoid default down the road. But none of Pakistan’s political parties seem to have the political will or ability to bring about such change.
Pakistan must reportedly pay back $73 billion by 2025; it won’t be able to do so without debt restructuring.
3. Flood recovery
A “ monsoon on steroids ” – directly linked to climate change – caused a summer of flooding in Pakistan so catastrophic that it has repeatedly been described as biblical. It left a third of the country under water – submerging entire villages – killed more than 1,700, destroyed homes, infrastructure, and vast cropland, and left millions displaced.
More than four months after the worst of the flooding, nearly 90,000 people are still displaced from their homes, and the floodwater is still standing in some areas. It would be enormously difficult for any country to recover from such a disaster and rebuild lost infrastructure, including roads and schools, let alone a government dealing with a cash crunch like Pakistan’s.
But the Pakistani government – in particular the foreign minister Bilawal Bhutto Zardari, who has visited the United States twice since the summer, and the minister for climate change, Sherry Rehman – has done an admirable job bringing awareness of the flooding catastrophe to the world stage. A donors’ conference Sharif co-hosted with the United Nations Secretary General Antonio Guterres in Geneva this month raised pledges for more than $9 billion for flood recovery over the next three years (the money is mostly in the form of project loans). Pakistan has also played an important role in discussions about the devastating effects of climate change on developing nations, spearheading the effort to place loss and damage on the agenda at COP27 for the first time, and pushing for COP delegates in Egypt to agree to a loss and damage fund.
With billions of dollars in help promised, the government has passed one hurdle. But the road for recovery ahead will be tough: Displaced people are still sleeping under open skies in Sindh province. Implementing a sustainable recovery will require enormous capacity, resources, and transparency in a country already mired in other troubles.
4. Mounting insecurity
The Pakistani Taliban (or TTP), the terrorist group responsible for killing tens of thousands of Pakistanis from 2007 to 2014, have been emboldened – predictably so – by a Taliban-ruled Afghanistan, and once again pose a threat to Pakistan, albeit in a geographically limited region (for now). The group engaged in at least 150 attacks in Pakistan last year, mostly in the northwest. Because the TTP have sanctuary in Afghanistan, the Pakistani state increasingly finds itself out of options when it comes to dealing effectively with the group. The state’s negotiations with the TTP have failed repeatedly, as they are bound to, because the group is fundamentally opposed to the notion of the Pakistani state and constitution as it exists today. The Afghan Taliban have, unsurprisingly, also not proved to be of help in dealing with the TTP – and Pakistan’s relations with the Afghan Taliban have deteriorated significantly at the same time over other issues, including the border dividing the two countries.
At this point, Pakistan’s first preference will be to strike kinetically at TTP targets within its borders, but that will be limited by TTP movement across the border into Afghanistan. That movement is what leaves Pakistan with the difficult-to-resolve TTP issue and complicates things beyond the military operation it launched against the group in 2014. Still, the Pakistani Taliban at this point is not the biggest threat Pakistan faces, given the country’s major political and economic challenges – but left unchecked, it could morph into a significant crisis.
5. Civil-military relations
Pakistan has a new chief of army staff as of November 29 last year. General Asim Munir replaced General Qamar Javed Bajwa, who had held the all-powerful post for six years (due to a three-year extension). The appointment of the army chief was a subject of considerable political contention last year; a major part of the reason Khan was ousted from power was his falling out with the military on questions over the appointments of top army officials.
All eyes are now on how civil-military relations shape up under Munir. Under Bajwa, the military solidified its control over all manner of policy behind the scenes. Bajwa presided over a close “same-page” relationship with Khan; when that frayed, the PML-N was eager to take Khan’s place as the military’s ally and head of the civilian government. Bajwa left office saying the army would no longer be involved in political matters; few in Pakistan believe him. With politics set to dominate the agenda this year and an election imminent, Munir has a chance to show the country whether he will follow in his predecessor’s footsteps, or chart a new course for civil-military relations in Pakistan. Pakistan’s history indicates the former.
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