Pakistan is grappling with a deepening socioeconomic crisis marked by escalating food inflation and unemployment rates, as per a recent report. Data from the World Bank reveals that nearly 45% of Pakistan’s population is living below the Poverty Line (BPL). The country is experiencing a 21-year low in unemployment rates, with investments at a 50-year low and a gross debt-to-GDP ratio of 71.3%.
The situation is exacerbating stagnation, inequality, fiscal strain, and reliance on the IMF, making reforms challenging while increasing the risk of debt default, the report highlights. Household expenditure on food has been on the rise, increasing from 86.79 in 2018-19 to 88.07 in 2023-24.
Moreover, the latest Household Integrated Economic Survey data indicates a drop in food consumption from 86.95 kg to 81.47 kg during the same period. The survey by the Pakistan Bureau of Statistics (PBS) points out that a significant portion of household income is allocated to basic food items, with the second-largest share going to housing, water, electricity, gas, and other utilities, reflecting the escalating costs in these areas.
The escalating debt-to-GDP ratio in Pakistan, surpassing the statutory limit of 60% to reach 71.4%, has been fueled by declining foreign inflows. This has led to a decrease in the country’s investment ratio to 13.1% of GDP, the lowest in 50 years, falling short of the 15% target. Consequently, Pakistan has been compelled to seek external loans to fulfill its developmental requirements, with the investment ratio likely to dip further below 13%.
A significant portion of Pakistan’s budget, approximately 5-60%, is allocated to debt servicing, prompting concerns from international financial institutions about the sustainability of Pakistan’s debt. Industry experts like Aamir Aziz, a textile manufacturer and exporter, and Yousuf Nazar, former head of Citigroup’s emerging markets investments, have highlighted the detrimental impact of Pakistan’s mounting debt on fiscal policies and economic growth.
According to Nazar, Pakistan’s debt burden has already exceeded sustainable levels, posing a critical choice between implementing necessary reforms or remaining ensnared in a cycle where past borrowings consume each new budget, transforming debt service into not just a fiscal constraint but a social crisis.
