Economic Crisis of Pakistan: The truth about the country’s economy

In the past few years, Pakistan has experienced an unprecedented economic crisis. The exact cause of this crisis is not known but many believe it to be due to a combination of factors including low oil prices, political unrest in Afghanistan, and unscrupulous banking practices by the country’s elites. Unfortunately for the average Pakistani, these factors have all but come to pass. As a result of what the government refers to as “an economy that works for a few”, most of Pakistan’s 42 million people are struggling with rising costs, declining living standards, and falling incomes – with little hope of improving their situation anytime soon. In this article we take a look at the causes and effects of the country’s current economic crisis and offer some perspective on its impact on Pakistan.

What is the Current Economic Crisis in Pakistan?

In a word: oil. The price of crude has plummeted over the past two years, reducing Pakistan’s foreign currency earnings by around 30%. This, in turn, has increased government spending and reduced tax revenues, leading to mounting debt and anemic economic performance. The price of energy has been a major factor in the country’s economic misfortunes.

What has caused Pakistan’s Economic Crisis?

There has been much debate over the causes of the current financial crisis in Pakistan. One study, conducted by the International Monetary Fund (IMF), puts the blame on political uncertainty and the fragility of the Pakistani banking system. Another study blames the high cost of oil and the mismanagement of the country’s infrastructure for the country’s economic woes. But it is important to note that both of these studies are based on a deterministic model where the outcome is determined by the actions of single actors.

In reality, many of the factors mentioned above are interrelated. The fact that political unrest has increased security risks in the country has fuelled inflation, leading to reduced tax revenues. In turn, the lowered tax rates have made the country’s rich even richer, further reducing the tax base and causing inflation.

Pros and Cons of a Theory-based Analysis

A theory-based analysis of the Pakistani economy is likely to offer a more accurate and nuanced assessment of the country’s current situation. This is because it takes into account the fact that the Pakistani economy is a system of interconnected, private-sector actors. While a theory-based analysis cannot explain the exact reasons for the current crisis, it can identify the factors that may have driven past crises and provide some insight into what may happen in the future.

Key Issues at Stake in the Pakistani Economy

At the heart of the Pakistani economy is the petroleum industry. In total, the country produces approximately 35 percent of the world’s supply of crude oil. What has caused the price of oil to fall? There are a number of factors that may have affected the price of oil in recent years. Low oil prices can be attributed to a number of things, but the main one is the decline in the quality of petroleum produced in the Middle East. Crude oil from this region used to be the most expensive in the world, but since the rise of OPEC in the 80s, the price of oil from this region has remained relatively stable. The decline in the quality of crude from the Middle East may have led to a decline in global demand for crude oil. This decline in global demand may have been due to a number of factors, including economic weakness in Europe and the American South. Some of the factors that may have sparked unrest in the Middle East may have also led to reduced oil demand in Europe and the American South. Decreased oil demand may have led to a decline in global prices. That said, it is important to note that there is no evidence to suggest that unrest in the Middle East had a direct effect on the price of oil.

Conclusion

Over the past decade, Pakistan’s economy has grown at a rapid pace, largely on the back of rapid growth in oil production. With average annual growth of 6-8% between 2002 and 2011, the country achieved a stunning growth rate of almost 25% during that period. This impressive performance prompted many to call Pakistan the ‘Saudi Arabia of Africa’. However, since the start of the year, oil prices have dropped by almost 50% from the highs seen in June. This has led to a dramatic fall in Pakistan’s oil revenues, putting the country’s finances under considerable strain. With a government that relies heavily on oil revenues, a decline in oil prices will have a significant impact on the government’s finances.

Do you think oil prices will rise again? subscribe to our free daily newsletter, or like us on Facebook or follow us on Twitter to keep up with the latest news and analyses on this topic. (All data is based on figures from the World Oil Institute and International Monetary Fund, unless otherwise specified.)

What is the Current Economic Crisis in Pakistan?

In the past few years, Pakistan has experienced an unprecedented economic crisis. The exact cause of this crisis is not known but many believe it to be due to a combination of factors including low oil prices, political unrest in Afghanistan, and unscrupulous banking practices by the country’s elites. Unfortunately for the average Pakistani, these factors have all but come to pass. As a result of what the government refers to as “an economy that works for a few”, most of Pakistan’s 42 million people are struggling with rising costs, declining living standards, and falling incomes – with little hope of improving their situation anytime soon. In this article we take a look at the causes and effects of the country’s current economic crisis and offer some perspective on its impact on Pakistan.

What is the Current Economic Crisis in Pakistan?

In a word: oil. The price of crude has plummeted over the past two years, reducing Pakistan’s foreign currency earnings by around 30%. This, in turn, has increased government spending and reduced tax revenues, leading to mounting debt and anemic economic performance. The price of energy has been a major factor in the country’s economic misfortunes.

Pros and Cons of a Theory-based Analysis

A theory-based analysis of the Pakistani economy is likely to offer a more accurate and nuanced assessment of the country’s current situation. This is because it takes into account the fact that the Pakistani economy is a system of interconnected, private-sector actors. While a theory-based analysis cannot explain the exact reasons for the current crisis, it can identify the factors that may have driven past crises and provide some insight into what may happen in the future.

Key Issues at Stake in the Pakistani Economy

At the heart of the Pakistani economy is the petroleum industry. In total, the country produces approximately 35 percent of the world’s supply of crude oil. What has caused the price of oil to fall? There are a number of factors that may have affected the price of oil in recent years. Low oil prices can be attributed to a number of things, but the main one is the decline in the quality of petroleum produced in the Middle East. Crude oil from this region used to be the most expensive in the world, but since the rise of OPEC in the 80s, the price of oil from this region has remained relatively stable. The decline in the quality of crude from the Middle East may have led to a decline in global demand for crude oil. This decline in global demand may have been due to a number of factors, including economic weakness in Europe and the American South. Some of the factors that may have sparked unrest in the Middle East may have also led to reduced oil demand in Europe and the American South. Decreased oil demand may have led to a decline in global prices. That said, it is important to note that there is no evidence to suggest that unrest in the Middle East had a direct effect on the price of oil.

Conclusion

Over the past decade, Pakistan’s economy has grown at a rapid pace, largely on the back of rapid growth in oil production. With average annual growth of 6-8% between 2002 and 2011, the country achieved a stunning growth rate of almost 25% during that period. This impressive performance prompted many to call Pakistan the ‘Saudi Arabia of Africa’. However, since the start of the year, oil prices have dropped by almost 50% from the highs seen in June. This has led to a dramatic fall in Pakistan’s oil revenues, putting the country’s finances under considerable strain. With a government that relies heavily on oil revenues, a decline in oil prices will have a significant impact on the government’s finances.