Under Prime Minister Mian Muhammad Shehbaz Sharif’s leadership, Pakistan’s economy has been navigating a turbulent global environment marked by supply chain disruptions, geopolitical tensions, and the lingering effects of the Russia-Ukraine conflict. In 2022, Pakistan faced the risk of defaulting on its international financial obligations due to the previous government’s failure to honour commitments made to the IMF. Despite these internal and external shocks, the government’s economic policies have laid the groundwork for recovery, steering the country toward macroeconomic stability.
Macroeconomic overview
Global economic growth has decelerated, and this has had a direct impact on Pakistan. However, the decisive steps taken by Shehbaz Sharif’s administration have led to some encouraging signs of recovery. After a contraction of -0.2 per cent in FY2022-2023, the economy rebounded with a 2.4 per cent growth in FY2023-2024. Projections suggest that this upward trajectory will continue, with GDP expected to reach 4.5 per cent by FY2027-2028. This forecast reflects the government’s commitment to creating an environment conducive to investment, ensuring that economic recovery is sustainable in the long term.
Pakistan Stock Exchange performance
The impact of government measures is already visible in improved economic indicators. A 19 September 2024 report by Bloomberg recognised the Pakistan Stock Exchange (PSX) as one of the world’s best-performing stock markets in 2024.
A 19 September 2024 report by Bloomberg recognised the Pakistan Stock Exchange (PSX) as one of the world’s best-performing stock markets in 2024.
On 19 September, the PSX’s benchmark KSE-100 Index reached near their record high, closing at 81,459 points after a 1.1 per cent increase, with intraday trading hitting a record 81,865 points. This marked the highest level of foreign investment in over a decade, contributing to the PSX’s remarkable 30 per cent growth this year, positioning it as one of the top-performing markets globally.
The report attributes the PSX’s exceptional performance to significant foreign investment and positive economic indicators that have bolstered investor confidence.
Inflation control
One of the most significant achievements of the current government has been the reduction of inflation, which had surged to 29.2 per cent in FY2022-2023, the highest in recent history. Through stringent fiscal and monetary measures, inflation is expected to fall to 9.5 per cent by FY2024-2025, with further stabilisation anticipated at 6.5 per cent by FY2026-2027. These efforts have been essential in protecting citizens’ purchasing power and restoring confidence in the economy.
Foreign exchange reserves and fiscal management
Pakistan’s foreign exchange reserves reached a critical low of $4.5 billion in FY2022-2023. However, under the current government’s strategic direction, reserves are projected to rise to $25.4 billion by FY2028-2029. This turnaround is driven by enhanced export performance, prudent fiscal policies, and multilateral financial support. Moreover, the fiscal deficit has been brought under control, with the debt-to-GDP ratio falling from 75 per cent in June 2023 to 67.2 per cent in June 2024.
The FY2025 budget aims to maintain this momentum with a primary surplus of 1 per cent of GDP, supported by increased tax collection and improved fiscal consolidation. Over the next few years, these measures are expected to reduce public debt further while enabling more spending on social and development programmes.
Sectoral performance
The industrial and services sectors have shown resilience, benefiting from policy rate cuts and improved financial conditions. Cement and petroleum sales witnessed upticks, and business sentiment surveys indicate greater capacity utilisation in manufacturing. On the other hand, the agricultural sector has faced challenges, particularly in cotton production, though rice exports and livestock growth have provided some stability.
Energy sector reforms
The government has also prioritised energy sector reforms to tackle fiscal pressures caused by mounting circular debt. By terminating costly power purchase agreements, Pakistan expects to save $1.48 billion, which will allow for increased spending on essential social services. These reforms are a cornerstone of the government’s efforts to ensure long-term fiscal sustainability while delivering affordable energy to consumers.
International support and debt management
The International Monetary Fund (IMF) has played a critical role in supporting Pakistan’s economic stabilisation. The IMF’s $7 billion loan package, approved in September 2024, has boosted foreign exchange reserves and investor confidence. In return, the government has committed to deepening economic reforms, with a focus on restoring fiscal discipline, broadening the tax base, and managing public-sector enterprises more efficiently.
The International Monetary Fund (IMF) has played a critical role in supporting Pakistan’s economic stabilisation. The IMF’s $7 billion loan package, approved in September 2024, has boosted foreign exchange reserves and investor confidence.
Challenges ahead
While challenges remain, including political risks and uncertainties in global commodity markets, the Shehbaz Sharif government has taken solid measures to steer the economy through difficult times. By focusing on fiscal consolidation, inflation control, and structural reforms, the government has laid a foundation for sustainable growth. Looking ahead, continued discipline and strategic international partnerships will be crucial in ensuring Pakistan’s economic resilience and long-term prosperity.
