Pakistan's Economic Woes Continue into 2024, While Bangladesh Flourishes

*Volunteers distribute bread for people to break their fast during the Muslim holy month of Ramadan in Islamabad, Pakistan, on April 15, 2023. (Saiyna Bashir/The New York Times)*

In a sobering revelation, Pakistan finds itself grappling with the most severe economic crisis in its history, a crisis that is forecasted to persist into 2024. The recently released United Nations (UN) report titled ‘World Economic Situation and Prospects 2024’ has painted a bleak picture, citing a multitude of challenges such as inflationary pressures, currency depreciation, and soaring sovereign debt as significant obstacles to Pakistan’s economic growth this year.

One striking statistic is that Pakistan is among the nations that have witnessed their currency depreciate by over 20 percent. The average inflation rate in Pakistan exceeded 30 percent in 2023 and is anticipated to remain alarmingly high, hovering close to 20 percent, according to the UN report. In stark contrast, neighboring Bangladesh, which separated from Pakistan in 1971, has successfully maintained a single-digit inflation rate.

Furthermore, Bangladesh boasts a stronger currency than Pakistan and is striving to achieve a 5.6 percent growth target for 2024. Pakistan, on the other hand, is grappling with policy paralysis and an overwhelming burden of external debt, particularly stemming from China’s Belt and Road Initiative (BRI). The State Bank of Pakistan (SBP) reports that Pakistan is burdened with repaying foreign loans amounting to USD 27.47 billion by November 2024.

Ahtasam Ahmad, Sector Analyst at Profit Pakistan Today, has underscored the challenging external situation and the significant hindrance posed by Chinese loans to debt relief resolution. He emphasizes that the government is confronted with the daunting task of managing borderline unsustainable debt levels, coupled with dwindling SBP reserves, making financial stability a precarious endeavor.

With China accounting for approximately 30 percent of Pakistan’s external debt, journalist Shahbaz Rana of Pakistan appeals to the Islamabad government to exercise caution in accepting condition-free foreign commercial loans. He predicts that 2024 may resemble 2023 in terms of both external and domestic financing needs.

Dr. Ikramul Haq, a lawyer at Pakistan’s Supreme Court, laments that the government has fallen into the trap of accumulating further debt, a predicament that has triggered the worst economic crisis in the nation’s history. He asserts that Pakistan’s primary fiscal challenge lies in imprudent borrowing and extravagant spending, which have plunged the country deeper into a perilous debt spiral.

On the international trade front, Pakistan faces ongoing challenges. While there was a slight improvement in late 2023, the overall trade outlook remains gloomy, with a decline in imports contributing to a reduction in the trade deficit. However, this has not stemmed the widening of the current account deficit, which is expected to persist in the coming months of 2024.

In stark contrast, Bangladesh is demonstrating remarkable economic resilience, with a projected growth rate of 5.6 percent in 2024, while Pakistan’s economy is projected to struggle to reach 2 percent. Bangladesh has now become the 33rd largest economy globally, boasting a GDP of USD 455 billion, surpassing Pakistan’s GDP, which stands at USD 340 billion.

Aside from grappling with acute inflation, high unemployment, widening financial deficits, and escalating external debt, Pakistan faces additional challenges outlined by the World Bank. These include a human capital crisis, a weak education system, inefficient human resources management, and a food crisis, all of which threaten to impede economic growth. Malnutrition is a particularly pressing concern, with approximately 80 percent of children not receiving essential nutrients, thereby adversely affecting economic progress. In contrast, Bangladesh outperforms Pakistan on various human development indicators.

Pakistan’s vulnerability to climate change further compounds its economic challenges. Climate-related impacts, such as irregular rainfall patterns, are expected to significantly impact the agriculture sector, thereby affecting overall economic growth.

Adding to Pakistan’s woes, the country is set to hold general elections in February 2024. The looming political instability is likely to cast a shadow over the country’s economic prospects. Political uncertainty has historically disrupted markets and business activities in Pakistan, and as the elections draw nearer, the potential for an economic downturn or recession looms larger.

Sergi Lanau, Director of Emerging Market Strategy at Oxford Economics, emphasizes that political instability exacerbates an already challenging situation, marked by high inflation, unemployment, and sluggish growth.

In closing, Pakistani journalist Farhan Bokhari highlights the obsession with political power acquisition amidst the backdrop of deep-rooted economic challenges. He foresees Pakistan entering another year grappling with formidable economic obstacles in its medium- to long-term future.