Pakistan’s economic trajectory has often felt like an unpredictable roller coaster, heavily influenced by who holds the reins of power at any given time. The nation’s economy, especially during periods of strong military influence, has been shaped by economic strategies aimed at generating immediate, short-term gains. Lowering interest rates has fr equently been a preferred tool to spur economic activity, yet this approach has often led to familiar cycles: a burst of economic optimism followed by deep structural issues that remain unaddressed.
Consider the era of General Ayub Khan in the 1950s and 1960s. His tenure is often remembered for extraordinary economic growth and significant infrastructural advancements. Under Ayub, Pakistan launched major projects like the construction of dams and expansion of the agricultural sector, giving rise to the so-called Green Revolution. The GDP growth rate averaged over 6% annually, and foreign investment poured in as the country was seen as a model of development in the Global South. The government emphasized industrialization, which led to the rapid rise of the manufacturing sector. Ayub’s policies were celebrated internationally, and there was a palpable sense of economic progress. But behind the scenes, this prosperity was far from evenly distributed. Wealth became concentrated in specific regions and among elite classes, creating stark economic disparities. The underprivileged areas, particularly East Pakistan (now Bangladesh), were left behind, fueling resentment and social unrest. The Karachi Stock Exchange (KSE), though still developing, reflected the economic vibrancy of the time. Yet, the seeds of economic and political instability were sown, and they would later manifest in the country’s turbulent history.
When General Zia-ul-Haq seized power in the late 1970s, he ushered in a new chapter marked by religious conservatism and a unique economic environment. His era coincided with the geopolitical tensions of the Cold War, which worked in Pakistan’s favor. Western nations, especially the United States, saw Pakistan as a critical ally in the region and poured substantial aid into the country. This financial support, along with a boom in remittances from Pakistani workers in the Middle East, created a sense of economic stability. The Karachi Stock Exchange showed steady growth, thanks to increased liquidity and positive investor sentiment. Yet, beneath this facade of stability lay an economy overly reliant on external financial flows. The government used interest rate adjustments to encourage investment, but the focus on short-term gains meant that vital sectors, like education and industrial diversification, were neglected. The failure to implement deep structural reforms left the economy fragile, dependent on external aid and remittances, rather than on sustainable internal growth.
In the early 2000s, General Pervez Musharraf took over and attempted to revive the economy through a series of market-friendly policies. His administration pursued liberalization and privatization, opening the doors to foreign investment. The telecommunications and banking sectors, in particular, experienced substantial growth. Musharraf’s economic team lowered interest rates, encouraging consumer spending and investment. The stock market entered a golden era, with the KSE-100 Index reaching record highs. Consumer credit expanded, and a wave of optimism swept across the urban middle class. However, this period of economic boom was, in many ways, a mirage. The apparent prosperity was heavily driven by speculative investments, especially in real estate. As a result, asset bubbles formed, which would later burst. When the global financial crisis of 2008 hit, Pakistan’s economic vulnerabilities were exposed. The country’s over-reliance on borrowed growth and speculative investments led to a painful economic downturn, and the optimism of the Musharraf years quickly faded.
Fast forward to today, and Pakistan finds itself navigating yet another complex economic landscape. The current government, led by Prime Minister Shehbaz Sharif, operates under a unique hybrid system with significant backing from the military establishment. General Syed Asim Munir, the army chief, plays a crucial role in this dynamic, providing unwavering political support that has enabled the government to push through difficult economic reforms. Faced with an economic crisis marked by record inflation, dwindling foreign reserves, and a widening fiscal deficit, the civilian-military partnership has been critical. In 2024, Pakistan secured a $7 billion loan from the International Monetary Fund, which helped stave off an imminent economic collapse. The IMF deal was a significant milestone, and the global financial community took note. The government’s economic measures, such as curbing inflation and stabilizing the currency, received international praise.
The Pakistan Stock Exchange has responded positively to these developments. In 2024, it is recognized as one of the best, rather the best-performing markets globally, with the KSE-100 Index posting most impressive gains & more gains are expected in near future. This is largely driven by renewed investor confidence, a sense of economic stability, and strategic government policies aimed at attracting capital. Lowering interest rates also are playing a crucial role. In November 2024, the State Bank of Pakistan made a bold move, cutting rates by 250 basis points to 15%. This aimed to stimulate economic activity following a dramatic drop in inflation, which had declined from over 40% in mid-2023 to 7.2% by late 2024. The idea is to revive consumer spending and make borrowing more affordable for businesses. However, economic experts remain cautious, warning that while interest rate cuts provide temporary relief, they don’t solve deeper, systemic issues.
General’s influence has been instrumental in ensuring that these reforms are carried out smoothly. The military’s support has been pivotal in maintaining political stability, which has, in turn, reassured both local and foreign investors. The government’s collaboration with the military has given it the muscle to implement reforms like stricter tax collection measures and energy sector adjustments. Still, despite this apparent progress, underlying challenges remain. The IMF has highlighted persistent problems such as a narrow tax base, weak governance, insufficient investment in public services, and chronic issues in the energy sector. These structural weaknesses continue to act as a drag on Pakistan’s long-term economic potential.
Pakistan’s story of economic management under both military and hybrid governments has been a tale of cyclical ups and downs. Quick fixes and interest rate cuts have often brought about short-lived prosperity, only to be followed by periods of stagnation and crisis. The current hybrid government, with its unique blend of civilian and military collaboration, has managed to create a sense of cautious optimism. But the question lingers: can Pakistan finally break the cycle of short-term gains and long-term pain? The answer remains uncertain, and while today’s economic indicators may inspire hope, history has taught observers to approach such optimism with a degree of skepticism. If Pakistan is to secure a more stable and prosperous future, it will need more than temporary economic measures; it will require genuine, deep-rooted structural change.
Ali A. Malik
al*********@gm***.com
