Pakistan: The economic focus

While digital service production and exports have increased, other sectors such as construction, transportation, and tourism have yet to fully recover. While some nations are seeing robust GDP growth, Afghanistan is experiencing a humanitarian catastrophe, Pakistan is reeling from a political crisis, and Sri Lanka is undergoing a balance-of-payments problem.


The international financial institution – World Bank (WB) – which is an influential source of funding as well as an avital knowledge platform for developing countries, has recently released a report containing economic data sets in a post COVID world for developing South Asian Economies such as Pakistan, India, Sri Lanka, Afghanistan, Bangladesh and Nepal. The report provides data for economists and policymakers in the aforementioned countries for formulation and implementation of holistic, evidence-based policies to reshape norms in order to move forward after the economic dampening effects of the COVID crisis. The report examines recent economic trends, the economic impact of the Ukraine conflict on South Asia, growth estimates, risk scenarios, and the conclusion that in order to reshape norms, certain economic adjustments have to be made.

The unequal recovery from the epidemic has left South Asian countries including Pakistan with a slew of policy issues, which have been worsened by the recently erupted conflict in Ukraine, the primary one being the massive increase in LNG and crude prices. While numerous nations struggle to fund fiscal and trade deficits due to rising inflation, it is equally important to realize the importance of designing a new course to address rising inequality, unleash fresh development potential, and accommodate an energy transition. In order to reform their economies, the policymakers will have to redesign their tax structures, increase competition, promote challenge vested interests and work on gender conventions. Three key aspects can be analyzed from the report for Pakistan’s contemporary economic situation to forecast for the future vis-à-vis other South Asian countries.

Read more: Why exports in Pakistan need special attention?

Stronger headwinds

Despite the fact that the region’s economy is recovering, the recovery has been uneven across sectors, countries, and population groups. While digital service production and exports have increased, other sectors such as construction, transportation, and tourism have yet to fully recover. While some nations are seeing robust GDP growth, Afghanistan is experiencing a humanitarian catastrophe, Pakistan is reeling from a political crisis, and Sri Lanka is undergoing a balance-of-payments problem. While high-skilled workers kept their jobs or sought new ones during the pandemic, just a few unskilled migrant workers returned to the cities. Men have also been able to find new work opportunities faster than women.


Major exporters in the region continue to see export values substantially above pre-pandemic levels due to rising commodity prices and domestic inflation. Because of their textile industries, Bangladeshi and Pakistani industrial production is higher than pre-pandemic levels and has increased faster than the global average, as shown in the graph below.


It can be inferred from Figure 2. that Pakistan comparatively performed well in terms of Merchandise Exports and Industrial Production vis-à-vis its South Asian competitors. The major chunk of credit of this upward trajectory goes to the ‘Textile Sector of Pakistan’, which the report also states. Pakistan had the region’s mildest export drop in 2020, whereby the textile sector led the way to a quick recovery. At the height of the epidemic in April 2020, Pakistani products exports were down 54% year on year. The textile sector, which accounts for more than 60% of total products exports, has led a rebound since late 2020.

Pakistan was the first Asian country to ease COVID limitations. This endorsed Pakistan to redirect orders away from other contenders, subsequently resulting in a 40 percent increase in goods exports in January 2019. Knitwear, cotton textiles, and bed-wear are among the commodity groupings that have benefited from export subsidies, as well as a significant reduction in import duties on textile intermediates and a favorable exchange rate in recent years.

Pakistan’s exports for March 2022 climbed by 21 percent, and exports for Jul-Mar’22 increased by 26 percent because of the textile sector. Growth has been enabled by the implementation of Regional Competitive Energy Tariffs during the last three years, leading in a $500 million increase in monthly export capacity. Moreover, more than 100 new textile units are being established, with investments totaling $5 billion made through the TERF/ITERF schemes, resulting in the creation of millions of new employments. Textiles have often proven to be a viable and long-term answer for guiding the country toward economic stability.

Read more: Pakistan’s National Electricity Plan 2022-2026 in perspective


Other sectors are also receiving incentives from the government in order to diversify exports but the textile sector was the main star of the show as it has demonstrated that given competitive inputs, Pakistan exports can make rapid headway. On the other hand, additional regulations were implemented to encourage firms to expand into new markets, particularly in the pharmaceutical, engineering, and chemical industries. According to the WB, the country must diversify its exports and increase its low exports-to-GDP ratio (now about 10%), for example, by tariff reductions to encourage manufacturers to export and compete in global markets. Therefore, the high bar set by the textile sector needs to be not only maintained but also needs to be taken a step forward for a sustainable economy. This can be only possible through the continuation of governmental support initiatives to the sector.

To weather the new external shocks on top of the pandemic’s consequences, carefully calibrated monetary and fiscal policies are required. Because fiscal space is limited and, more importantly, the primary shocks to South Asian economies have been negative supply shocks, there is little room for widespread fiscal stimulation. Broad-based demand stimulus will just lead to higher inflation when supply is limited. As a result, it is preferable to concentrate on the quality of government spending. Targeted income support, for example, is more efficient than price subsidies for poor households suffering with rising food and energy expenses. Because increased inflation has reduced real interest rates and financial conditions in the United States, there is room for central banks to establish higher nominal interest rates.

The path to a new normal needs to be charted

 The prediction for South Asia’s GDP growth in calendar year 2022 in the study by WB is 6.6 percent, which is a full percentage point lower than the World Bank’s January forecast. The net effect of the negative impact of the war in Ukraine and certain good surprises, particularly the stronger-than-expected performance of the services sectors, has resulted in this downgrading. In 2022, higher import prices will put more strain on the region’s current account balances. According to this analysis, the war could cut South Asia’s income growth by 2.2 percentage points this year, 1.3 percentage point owing to weaker GDP growth and 0.9 percentage point due to terms-of-trade losses, primarily due to increased fuel import prices.

Owing to this it is very crucial for Pakistan to transform its energy sector through encouraging power sector reforms, developing of a true bilateral energy trading platform, investments to reduce load shedding, boost low-cost generation, improve transmission, strengthen governance, and reduce losses.

Sri Lanka, which is already struggling to pay its import bills, and the Maldives, whose oil imports as a percentage of GDP are the highest of any South Asian economy, and 20 percent of tourists in the Maldives come from Russia and Ukraine, are expected to be the most affected. Higher food prices are making humanitarian help to Afghanistan more difficult. A potential indirect effect of lowering import demand in Europe would have an impact on Bangladesh.

Read more: Enhanced exports: The only economic solution?

According to the WB, Pakistan’s GDP growth would decelerate to 4.3 percent in FY2021/22 (ending June 2022) and 4.0 percent in FY2022/23. This occurs in the context of monetary tightening measures that began in September 2021, significant base effects from the previous year, and persistently high inflation, which is eroding real private consumption growth. Beyond that, structural measures to promote macroeconomic stability, increase domestic revenue collections, improve the financial viability of the energy industry, and improve export competitiveness are expected to eventually pay off.

This sheds the spot light again on the textile sector of Pakistan which has time and again proved its ability to positively impact the GDP of the country by consistently maintaining its export growth rate. Trailing on this trend, it is a turning point for the country to focus on the textiles for an upward trajectory of the GDP growth rate. This would ensure a stronger economy independent of loans from international loan agencies.



Altering gender social norms

Apart from the Middle East and North Africa, South Asia falls behind other regions in terms of gender outcomes and attitudes toward gender equality. People’s unique opinions are more conventional than social conventions. Even after controlling for economic growth, social norms and personal attitudes are key drivers of gender outcomes, such as female labor force participation.

The position of women in all socioeconomic settings has remained a critical prerequisite for not only the economic, social, and political advancement of that civilization but also for global progress. However, this fact is accompanied by the regrettable existence of a reality that prevents women from achieving the aforementioned liberation. This is exemplified by the fact that half of Pakistan’s population (49.2%) is underutilized, despite the fact that they have enormous economic and social advancement potential. This bifurcated population is a picture of Pakistani women, who are mostly excluded from the country’s policy equation in all domains.

According to The World Economic Forum’s Global Gender Gap Report 2020, the Global Gender Gap Economic Participation and Opportunity revealed a value of only one-quarter of Pakistani women engaged in the workforce, either employed or looking for work. On the other hand, 85% of Pakistani men are economically active.

Read more: Omicron and Exports: A Regional Analysis

Similarly, women in Pakistan earn only 18% of the labor income (World Bank, 2020). Furthermore, in 2020, the WB estimated that women hold only 5% of senior leadership positions in Pakistan, ranking it 146th out of 153 countries studied in the research. This is a sad state of affair as female managers outperform their male colleagues when it comes to boosting employee engagement, according to a Gallup survey based on almost four decades of research and the analysis of 27 million employee responses. Research has also shown that women in top echelon positions may have a progressive upshot on the firm’s sustainability.


Thus, the report has provided valuable economic data sets pertaining to crucial economic factors for the South Asian Economies. The necessary measures which Pakistan can take to tackle these can be encapsulated as:

  • Improve the effectiveness of fiscal policy in order to promote recovery and growth. Instead of blanket transfers and price controls, more efficient and targeted support for people and businesses would alleviate pain and make room for investment in trade, energy, and technology dissemination infrastructure. Committing to fiscal rules and future income and expenditure reforms would aid in reconciling spending demands with increasing budget restrictions in the face of rising debt.
  • Policy changes and assistance are needed to encourage the spread of technology. Increased domestic and international competitiveness may increase the incentives for the adoption of productivity-enhancing technology. The capacity for technology adoption could be boosted by boosting managerial and technical skills, as well as expanding access to funding and digital infrastructure. Domestic distortions, such as those caused by fossil fuel subsidies and local content restrictions, could stimulate green technology adoption.
  • Given the fiscal constraints, energy tariff interventions should be highly focused to ensure a competitive edge for Pakistani products in international markets which leads toward more enhanced investments, employment rates and production exports etc.
  • Pakistan should not only include its women labor force in all policy domains but also work towards uplifting of women from lower professional echelons to higher professional echelons for a sustainable future. All hurdles to women’s engagement, including gender-biased norms, must be addressed in order for interventions to be successful.


Written by Shahid Sattar and Amna Urooj 

Mr. Shahid Sattar, now Executive Director & Secretary General of All Pakistan Textile Mills Association (APTMA), has previously served as Member Planning Commission of Pakistan and an advisor to the Ministry of Finance, Ministry of Petroleum, Ministry of Water & Power.

The views expressed by the writers do not necessarily represent Global Village Space’s editorial policy


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