Pakistan’s Economy 2024: Gains for Some, Challenges for Many

Pakistan’s economy saw significant progress in 2024. The country’s default risk dropped by 93%, the current account balance reached a 10-year high, and inflation fell to 4.9% in November—the lowest since May 2018.

The State Bank reduced its policy rate by 900 basis points to 13%, the lowest borrowing cost since April 2022. Meanwhile, the stock market became a global top performer, elevating investor confidence to its highest in three years.

Despite these successes, poverty remains a pressing issue, with over 40% of the population living below the poverty line. GDP growth at 2.5% lags behind the South Asian average of 6.4%, and GDP per capita, at $1,587, remains below the regional average of $2,303, failing to recover to 2018 levels of $1,684. While economic stabilization has been achieved, sustainable growth and poverty reduction must now take priority.

When the current government assumed office in March 2024, it signaled a commitment to economic reform by establishing task forces of domestic and international experts with tight deadlines to deliver actionable recommendations. It integrated reforms initiated by the interim government and finalized a comprehensive sectoral reform plan for all economic ministries within a few months.

The plan was slated for announcement by the prime minister on August 14, 2024, but implementation has inexplicably stalled.

In addition to the sectoral reforms, specific measures were identified for immediate action. These included restructuring the Federal Board of Revenue (FBR), an institution largely untouched by reform for nearly a century. Proposed changes involved separating tax collection from fiscal policy, splitting customs and indirect taxes into distinct entities, and creating oversight boards for accountability. However, these reforms now seem abandoned.

Similarly, recommendations from an independent panel of economists and tax experts to overhaul tax and tariff policies were ignored in favor of regressive taxation. As a result, growth slowed, and tax revenue fell short of the Federal Board of Revenue’s six-month target by Rs. 400 billion.

Privatization efforts for loss-making state-owned enterprises (SOEs) have also faltered. The Pakistan International Airlines (PIA) privatization process remains mired in mismanagement, while no progress has been made on Pakistan Steel Mills, which has been non-operational for a decade and accumulated over Rs. 600 billion in losses. Annual SOE losses are expected to exceed Rs. 1 trillion by the end of this fiscal year.

Governments typically have a narrow window—usually the first two years in office—to push bold, transformative reforms. As elections approach, attention often shifts to short-term political gains, leaving little room for long-term measures.

To make the most of this critical period, the government must shed its "paralysis by analysis" approach, which delays decisions under the guise of excessive evaluation, and push forward its reform agenda decisively before time runs out.

In summary, 2024 brought prosperity to the wealthier segments, particularly stock market investors, but offered little relief to the poorer majority. While the decline in inflation provided some respite, regressive tax policies deepened poverty.

As 2025 begins, implementing the finalised sectoral reforms must become the government’s foremost priority. Reforms in tax and tariff policies, modernising the FBR, and privatising loss-making SOEs must move forward without further delay. These steps are essential for fostering equitable and sustainable economic progress.