Pakistan long-term growth capped by political and economic hurdles
Pakistan’s economic growth is set to rise gradually in the long run, though the nation’s inability to tackle deeper structural issues like corruption and reduced geopolitical relevance could limit the upside, according to Bloomberg.
South Asia Economist Ankur Shukla noted in a report released on Thursday that Pakistan's potential growth rate—defined as the highest pace at which an economy can grow without causing additional inflationary pressures—is projected to reach 4% by the fiscal year 2040. This is an improvement over the 3.2% potential growth recorded in the last fiscal year, but it remains lower than the growth rates seen in the mid-2000s.
Currently, Pakistan is working to secure the final approval from the International Monetary Fund (IMF) for a 7 billion US dollar loan to stabilize its struggling economy and manage its rising debt levels.
'This will likely avert a default in the near term and may also pave the way for growth-enhancing reforms, such as easing investment regulations,' Shukla wrote.
However, he cautioned that persistent structural problems, including corruption, weak political institutions, and a likely decrease in geopolitical importance for the United States following its withdrawal from Afghanistan, could hinder Pakistan's ability to attract foreign investment.
Shukla also pointed out that the higher taxes required by the IMF and the lack of foreign investor interest in providing capital are likely to limit the country’s growth prospects.
Bloomberg Economics predicts that Pakistan’s average annual investment growth will be only about 0.5% over the next three years, up to fiscal 2027—significantly lower than the 2.3% average recorded between 2011 and 2019.
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