Lahore School of Economics

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Strengthening Pakistan's Economy: Key Challenges and Solutions
April 29, 2025

Opening address by Dr. Shahid Amjad Chaudhry, Rector, Lahore School of Economics at the Eighteenth Annual Conference, Management of Pakistan Economy

Pakistan is currently going through a three-year economic stabilization program covering the period 2024-2027 with the support of the IMF. This conference comes at an appropriate time at the end of the first year (2024-2023) to review the effects of the stabilization program and suggest appropriate corrections to the programs. While the speakers at the conference will putting up their detailed analysis and concerns, I would like to stress the following challenges to the strategy:

External Debt Management to Eliminate the One-Year Duration Debt

Pakistan’s current external debt is about $130 billion or 23 percent of GDP. I believe that the current stabilization program while correctly identifying external debt as a source of vulnerability to the economy does not place any emphasis on retiring the external debt of $12 billion subject to annual roll overs. This type of debt in the form of deposits with the State Bank of Pakistan is due to three countries - China, Saudi Arabia and UAE. In fact, IMF Program policy explicitly counts as a plus factor the securing of these annual roll-overs and suggests that these roll-overs will not happen if the IMF Program is not followed. I strongly urge Pakistan’s Policy makers aim to retire this annually rolled over external debt amount in the next four years i.e. by $3 billion per year. All increased workers remittances currently estimated at about the same amount i.e. $3 billion per year should be utilized for this purpose. This will also enable Pakistan to not be forced automatically into a follow up IMF after the current one expires in 2027.

Productive Sector Structural Reforms Leading to Short and Medium-Term Disruption and Decline

The stabilizations program is currently executing a strategy which well intentioned is resulting in a major re-structuring of the economy without taking into effect its impact on (i) existing production structures (ii) employment and (iii) poverty. The current strategy is leading to both a pre-mature de-industrialisaion in all leading industrial sectors particularly light engineering and also a dismantling of the current production structure of the agricultural economy by forcing the farmers to abandon wheat and rice production without offering an alternate crop production cycle comprising possibly of oil seeds and maize in the winter and millet bajra in the summer. A transition strategy needs to be elaborated and executed for the productive sectors which are proposed to be phased out with protection for potentially competitive infant industries and new internationally competitive agricultural crops.

Disincentives to Urbanization

The current economic policies are discouraging urban sector development by moving property taxation structures to percentage of land value rather than annual rental value and by treating investment in land and real estate by house-holds as a ‘waste’ rather than as a backbone of the economy. This will encourage further capital flight from Pakistan and change urban landscapes into rich people’s enclaves. These policies need to be reversed.

Concentration of Wealth in about 100 families in Pakistan

Pakistan is actively seeking privatization of all its major publicly owned assets (PIA, DISCO’S etc.). There are only about 100 families in Pakistan who possess assets capable of acquiring these to be privatized state assets. These families already 63% of the companies listed on the Pakistan Stock Exchange. Further increased concentration of wealth will have significant implications for Pakistani society. Possible solutions may involve compulsory listing on the stock exchange of all registered companies above a certain financial limit as was the case earlier.

Insufficient Policy on Social Protection

The current stabilization policies have caused a mass increase in poverty with about 40% of the population currently below the poverty line. Earlier this had come down to less than 10 percent below the poverty line before the last two IMF supported stabilization programs were put into place. The current social protection policy focuses entirely on the bottom 10% of Pakistan population comprising of about 6-7 million families. This is inadequate. This should be doubled to size in both coverage to about 15 million families or about 20% of the population and also in amounts disbursed per family to about $1 (Rs.300) per day.

Short-sighted Removal of Incentives to Solar Energy

Finally, I would wish to point out the hesitancy in fully adopting a policy on household generation of solar energy for use in meeting household living and transport requirements. The policy makers are attempting to protect the misdirected investments in power generation based on largely imported oil and gas in which we locked into through long-term contracts. These should be written off with costs to be borne by the Federation and the Provinces jointly through an appropriate constitutional amendment or changes in the NFC award as necessary. There should also be a ban on new dams for power generation.

I hope these thoughts are useful in providing a general background to how I see the economic situation in Pakistan. However, luckily, we have very distinguished economists from Pakistan and abroad, and their views will be important for guiding all of us with regard to future policies.

Labels: Management of Pakistan Economy