Pakistan’s economic journey since March 1940 has been a rollercoaster ride of triumphs and tribulations. The country’s founding father, Quaid-e-Azam Muhammad Ali Jinnah, played a pivotal role in shaping Pakistan’s economic destiny. In his presidential address to the All India Muslim League in March 1940, Jinnah emphasised the need for a separate homeland for Muslims, which ultimately led to the creation of Pakistan. This marked the beginning of Pakistan’s economic journey, which has been influenced by various factors, including political instability, economic crises, and social pressures.
Over the past 80+ years, Pakistan has experienced periods of economic growth and decline. The country has faced numerous challenges, including a large fiscal deficit, inadequate resource allocation, and vulnerability to external shocks. Despite these challenges, Pakistan has made significant progress in implementing economic reforms and promoting economic growth. The country has also made strides in developing its infrastructure, increasing access to education and healthcare, and promoting entrepreneurship and innovation. However, Pakistan’s economic path remains turbulent, and the country continues to face significant economic challenges that need to be addressed to ensure sustainable and inclusive growth.
1940-1965: The Formative Years
The period from 1940 to 1965 was crucial in shaping Pakistan’s economic destiny. At independence in 1947, Pakistan inherited a fragile economy, with limited resources and a lack of infrastructure. The country faced significant challenges, including a severe shortage of skilled personnel and administrative capacity, limited financial resources, with a mere Rs.150 million allocated for development expenditure in the first budget, and a lack of infrastructure, including roads, railways, and energy systems. Despite these challenges, the Government of Pakistan implemented several initiatives to promote economic growth and development. These included the establishment of the Pakistan Industrial Development Corporation (PIDC) in 1952 to promote industrialisation, the introduction of the first Five-Year Plan (1955-1960) to promote rapid industrialisation and economic growth, and the establishment of the State Bank of Pakistan in 1948 to regulate the banking system and promote monetary stability. The 1950s and 1960s saw significant economic growth and development in Pakistan.
The country experienced rapid industrialisation, with the growth of textiles, steel, and cement industries, increased investment in infrastructure, including roads, railways, and energy systems, and improved agricultural productivity, with the introduction of new irrigation systems and farming techniques. The government’s policies and initiatives played a crucial role in promoting economic growth and development during this period.
The first Five-Year Plan (1955-1960) was particularly successful in promoting rapid industrialisation and economic growth. However, despite the progress made during this period, Pakistan’s economy faced several challenges and constraints, including a lack of skilled personnel and administrative capacity, limited financial resources and dependence on foreign aid, and a lack of infrastructure, including roads, railways, and energy systems. These challenges and constraints limited Pakistan’s economic growth and development, and the country continued to face significant economic challenges in the years that followed.
1965-2000 the Post War Era
The period between 1965 and 2000 was marked by significant economic challenges and transformations in Pakistan. The 1960s saw substantial economic growth, with an average annual GDP growth rate of 6.7%. The government’s policies focused on industrialisation, and the manufacturing sector experienced rapid growth, expanding at a rate of 16% per annum from 1960/61 to 1964/65. However, the Pakistan-India War of 1965 led to reduced foreign economic assistance, impacting the growth rate of large-scale manufacturing. The 1970s brought a shift towards nationalization, with the socialist Pakistan People’s Party gaining power. This period was marked by high inflation, trade imbalances, and a decline in economic growth. The 1980s and 1990s saw a move towards privatisation and deregulation, with the government implementing policies to promote private sector industrial investment. This led to robust economic growth, with the GDP growth rate reaching 8.6% in 2004-05. However, the decade also faced challenges such as high inflation, trade deficits, and a worsening fiscal position. The poverty incidence rate fluctuated, reaching 34.5% in 2000-01. Despite these challenges, Pakistan made significant progress in reducing poverty and improving economic growth during this period. The country’s economic landscape continued to evolve, with a growing services sector and a decline in the share of agriculture in GDP.
2001-2020 the Millennium Era and Pakistan’s Economic Resurgence
The period between 2001 and 2020 was marked by significant economic challenges and transformations in Pakistan. The country faced a major turning point in 2001 when the 9/11 attacks led to a significant influx of foreign aid, particularly from the United States. This aid helped boost Pakistan’s economy, with the GDP growth rate reaching 8.6% in 2004-05. However, the economy also faced significant challenges, including high inflation, trade deficits, and a worsening fiscal position. The global financial crisis of 2008 further exacerbated these challenges, leading to a decline in economic growth. Despite these challenges, Pakistan made significant progress in various sectors, including telecommunications, information technology, and textiles.
The country also saw an increase in foreign investment, particularly from China, with the launch of the China-Pakistan Economic Corridor (CPEC) in 2015. However, the economy continued to face significant structural challenges, including a large fiscal deficit, a declining tax-to-GDP ratio, and a lack of investment in human capital and infrastructure. These challenges limited Pakistan’s economic growth potential and made it vulnerable to external shocks.
The Post-Pandemic Era (2020-2025)
The period between 2020 and 2025 was marked by significant economic challenges and transformations in Pakistan. The Covid-19 pandemic had a devastating impact on the country’s economy, with GDP growth contracting by 0.2% in FY23. However, with the government’s efforts to stabilize the economy and the approval of an IMF Stand-By Arrangement in July 2023, the economy began to recover in FY24. Real GDP growth is estimated to have risen to 2.5% in FY24, driven by the availability of imported inputs, easing domestic supply chain disruptions, and lower inflation.
Despite the recovery, Pakistan’s economy still faces significant challenges, including high inflation, a large fiscal deficit, and a heavy banking sector exposure to the sovereign. The poverty rate remains high, with an estimated 40.5% of the population living below the lower-middle-income poverty line of $3.65/day in FY24. To address these challenges, the government needs to implement substantial reforms, including improving tax collection, investing in energy infrastructure, and enhancing the business climate. With the new IMF-EFF program and continued fiscal restraint, Pakistan’s economy is expected to gradually recover, with real GDP growth projected to reach 2.8% in FY25.
Hence, it is concluded that Pakistan’s economic journey has been marked by significant achievements and setbacks. Despite facing numerous challenges, including political instability, economic crises, and social pressures, the country has made notable progress in promoting economic growth and development.
To sustain this growth and address ongoing challenges, Pakistan must implement substantial reforms, including improving tax collection, investing in energy infrastructure, and enhancing the business climate. For Pakistan to achieve sustainable and inclusive growth, it is crucial to learn from its past experiences and adapt to emerging global trends. The country’s economic resilience and potential for growth are evident, but addressing the existing structural challenges will be vital to unlocking its full economic potential.
The Author is MD IRP/ Faculty Department of H&SS-Bahria University Karachi