Cash-starved Pakistan is facing an unprecedented financial crisis, driven by a complex web of challenges. A leading Pakistani-American economist has sounded this warning. Princeton economist Atif Mian has pointed out that mounting domestic and external debt, unmanageable pension obligations and a failing energy sector are key factors pushing Pakistan into the economic abyss, Dawn newspaper reported. His assessment paints a grim picture, stating that Pakistan’s economic crisis is extremely severe, making it a clear example of fiscal mismanagement on the world stage.
Why is Pakistan’s economy in trouble?
In a comment on social media platform X, Mian said Pakistan’s domestic and external debt, its unpaid pension obligations and the energy sector have pushed Pakistan into a deep financial crisis. It is hard to imagine any other country’s situation being as bad. Responding to Mian’s analysis, Asad Rizvi, former treasury chief at Chase Manhattan Bank, urged him to offer practical solutions to address these challenges and get the economy back on track.
Mian answered this question like this
Rizvi also asked Mian how advanced economies with high debt-to-GDP ratios are handling their situations. Rizvi stressed that without addressing critical issues such as tax-to-GDP ratio (by documenting the economy), bank credit-to-deposit ratio and open market operations (OMO), the economy will struggle to get back on track.
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Pakistan’s GDP is less than Tata Group’s market capitalization
Currently, Pakistan’s GDP is less than the market capitalization of India’s Tata Group. According to data from February 2024, the total market capitalization of Tata Group was $365 billion. While Pakistan’s GDP amounted to $341 billion. What is special is that the market capitalization of TCS, the largest company of the Tata group, was $170 billion. There was a time when the net worth of the world’s richest businessman Elon Musk amounted to $340 billion. Which is equal to the economy of Pakistan.
relief in foreign reserves
On the other hand, there is a continuous increase in Pakistan’s foreign exchange reserves. According to the State Bank of Pakistan report, there has been an increase in foreign exchange reserves for 6 consecutive weeks. Which has reached a 26-month high. Although these may be good signs for Pakistan’s economy, they are insufficient. At present, Pakistan’s debt is higher than its foreign exchange reserves. In such a situation, deep concerns are continuously being expressed about Pakistan’s economy.
