A speedy decline in the PKR value was seen in recent weeks but now after Ishaq Dar’s return as a newly sworn-in Finance Minister, PKR is flourishing day by day. In the previous tenor as a Finance Minister from 2013 to 2017, Ishaq Dar focused on the central bank pumping dollars into the market with the object to keep the value of the greenback artificially near to Rs90. Now once again USD is losing ground against PKR, but it does not seem that Pakistan’s economic indicators are improving. One of the various factors is that most people convert their savings into dollars, and due to speculation that the dollar will fall, they sell it. When this coalition government came to power, the dollar was seen depreciating at that time as well. But after a short time, USD continued again its upward trajectory.
Pakistan’s economy has always been subject to ebb and flow. The State Bank of Pakistan was founded in 1948, and after it, a currency dispute between Pakistan and India broke out in 1949. Trade relations remained strained until the issue was resolved. Economic growth in the 1950s averaged 3.1 % per annum. On the other hand, Pakistan’s economy was impacted positively by Korean War. In 1950, South Korea was invaded by communist North Korea with the support of the USSR, meanwhile, the USA decided to help South Korea. Pakistan had joined United Nations and voted in favor of South Korea. So, Pakistan also took the decision to help South Korea. Due to the Korean War, the overall demand for goods increased worldwide. Pakistan exported wheat, cotton and jute, and benefited from it significantly. Pakistan did not devalue its currency as compared to neighboring country India. Pakistan’s second five-year plan ended in 1965. Pakistan’s economy was a model for developing countries. According to the World Bank, Pakistan was included in the countries that could have achieved the status of the first world (developed countries) at that time.
After the Indo-Pak War of 1965, the economy was affected but soon brought under control and by 1968 the growth rate was again above 7%. After that, the situation started to deteriorate. When the new government came to power in 1972, many reforms in the country were tried to implement, but their impact was negative. In the 1980s, there was political stability in the country, so the growth rate started to increase, but due to the Afghan crisis, internal crises continued to arise in the country. Since 1988, the governments have tried to keep the people happy with temporary measures instead of sustainable development. And the fact is that Pakistan’s economy could never stabilize after that.
The war in Afghanistan also impacted Pakistan’s economy. The conflict and instability in Afghanistan in the aftermath of the 9/11 attacks and their regional implications had very negative repercussions; there was a huge influx of Afghan refugees across the border into Pakistan and then a sudden increase in the frequency of terrorist attacks in Pakistan. Pakistan continues to pay a heavy price both in economic and security terms due to this situation, and a substantial portion of precious national resources diverted to address the emerging security issues over the last several years. The rise of violent extremism and increase in terrorism in Pakistan due to instability in Afghanistan caused serious damage to our economy. This situation disrupted Pakistan’s economic adversely and trading activities which resulted in higher costs of business and created disruptions in the production cycles, resulting in prominent delays to meet the export demands around the globe. That’s why Pakistani products gradually lost their market share to their competitors. As a result, our economic growth slowed down, and Pakistan’s exports decreased with declined tax revenue and inflows of foreign investment. Investment outflow and negative trends of outsourcing of capital in Pakistan have further added to the woes of the dwindling performance of the export-oriented industry.
Another major issue in the country is the deficit of government institutions. Unfortunately, no policy has been made yet. Steel mills and power distribution companies are at a loss. All these institutions should be immediately either given to the private sectors or handed over to the provinces. Dams as per the nation’s needs are not constructed in the country and hence cheap electricity is not available. The country has been caught in the clutches of IPPs, due to which not only the cost of energy increases but also the circular debt continues to increase. Even now, the coalition government of Prime Minister Shehbaz Sharif, which assumed power in April 2022, is grappling with multiple political and economic crises. The economy is a serious problem; it cannot be solved politically.