Zahra Niazi-EconomicRecovery-MDS-2

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2023 began on a dismal note for Pakistan’s economy, as foreign exchange reserves were fast-depleting, remittances and exports were declining, the rupee was depreciating, industrial production was decreasing, and inflation surged – resulting from a confluence of multiple internal and external factors. In the months leading up to June, newspaper and media headlines continued to warn that the country’s economic crisis could soon morph into a sovereign default without a bailout loan from the International Monetary Fund (IMF).

Fortunately, this worst fear did not materialise, as Pakistan secured the critical USD 3 billion IMF bailout loan in July. Improvement in many key economic indicators in the concluding months of 2023 points out that Pakistan has already passed the tumultuous phase and is now headed towards a gradual and measured economic recovery.

After record depreciation in May, August, and September, the Pakistani rupee is on an upward trajectory against the US dollar, thanks to an increased crackdown against the illegal hundi and hawala operations and foreign currency smuggling. Inflows from friendly nations and the recent IMF review success are also being attributed to this trajectory.

On the external front, Pakistan posted a current account surplus of USD 9 million in November. The value of the country’s exports increased to USD 2,764 and USD 2,732 million in October and November, respectively, helped by a smooth supply of raw materials resulting from some ease in import restrictions after remaining below USD 2,500 million in the preceding months of the year, except in May. Similarly, the monthly inflow of workers’ remittances increased marginally to USD 2,208, USD 2,463, and USD 2,250 million in September, October, and November, respectively, after remaining below USD 2,200 million in the preceding months of the year, excluding March when the remittance inflow increased due to Ramadan. Crackdown against hawala dealers and the convergence of interbank and open market rates majorly underpin this marginal rise in remittances. Net Foreign Direct Investment (FDI) reached an eight-month high in September as Chinese investment in the country rose.

In the fiscal sphere, the Federal Board of Revenue (FBR) reported historic revenue collection growth in the first five months of FY23-24 (July-November)  after failing to achieve the FY22-23 revenue target. The national Consumer Price Index (CPI) based inflation fell to 26.8% in October on a year-on-year (YoY) basis – the lowest in ten months, as authorities cracked down on currency hoarders, slashed fuel prices, and global commodity prices fell back from their peak. It increased to 29.2% in November, as the government imposed gas tariffs to qualify for the next IMF bailout loan, but remained below the monthly CPI recorded between February and June and the four-month high in September. Moreover, the country’s manufacturing and agricultural sectors also show signs of recovery.

However, while this is an encouraging outlook, a deeper dive suggests that much more substantial and long-term commitment to reforms and robust efforts will have to be undertaken if Pakistan is to translate its economic recovery into sustainable economic growth.

Take exports, remittances, and FDI, for example. Data for the first four months of FY23-24 reveals that exports of textiles and textile articles amounted to USD 5,543.98 million, representing 45.5% of the total exports of goods and services, which were valued at USD 12,193.27 million. In comparison, the export of all services combined totalled USD 2,416.35 million, accounting for just 19.8% of the total exports. Likewise, data on workers’ remittances shows that during the first five months of the current fiscal year, four destinations, including the United States, the United Kingdom, Saudi Arabia, and United Arab Emirates, accounted for USD 7,043.9 million or 63.8% of the total USD 11,045.2 million remittance inflows to Pakistan.

Excessive reliance on the textile sector for export proceeds, which has already been witnessing weakening global demand, and a few destinations for the bulk of remittance inflows do not bode well for the sustainability of the country’s foreign exchange earnings. Additionally, in terms of FDI as well, China alone accounted for more than 30% of the country’s net FDI during the first three months of FY23-24, underscoring the need for targeting additional sources of FDI to make its inflow sustainable, for which improving the country’s investment climate will be imperative.

Another case in point – while the recent increase in revenue generation is commendable, significant taxation burden continues to fall on the salaried class, which has reportedly been paying nearly 300% more tax than Pakistan’s wealthiest exporters. Unless these wealthy exporters are determinedly brought into the tax net, sustainability of the tax system cannot be guaranteed.

In the midst of every crisis, lies great opportunity.’ As Pakistan steadily recovers from one of its worst economic crises, it has an opportunity to ‘build back better’ and ensure that the economic recovery is long-term, durable and resilient. This necessitates that all actions taken today are complemented by measures that incorporate a longer-term perspective. As we enter 2024, this is the goal that we must keep in mind and take all steps possible to strive towards. The path may be challenging, but the goal is not unachievable.

Zahra Niazi is a Research Assistant at the Centre for Aerospace & Security Studies (CASS), Islamabad, Pakistan. The article was first published in The News International. She can be reached at

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