TF Country Analysis: Pakistan
The Islamic Republic of Pakistan is the world’s fifth largest country by population (approx. 230 million) and 33rd by area (900 000 km2). It is the world’s second most populous Muslim majority country after Indonesia and the only Muslim country with nuclear weapons and has had a history of conflicts with another nuclear-weapon state, India. It is one of the oldest allies of the People’s Republic of China and is having to strike a balance between its relations with the USA on one hand and China in the other.
Pakistan has historically used a sizeable part of its budget for defence and defence spending still constitutes about 16-18 % of the budget and about 4 % of GDP. This has resulted in lower GDP growth, which leaves Pakistan today as a lower middle-income country with a GDP/capita in real terms of USD 1540 and in PPP-adjusted terms of USD 5880.
Pakistan has a history of economic problems caused by current account and budget deficits. Pakistan’s government is negotiating with the IMF for the extension of the Extended Funds Facility to stave off a default. The negotiations are difficult for the government as it does not want to make unpopular decisions on cutting down and revoking unsustainable subsidies on e.g. fuels, which are a part of IMF’s preconditions for an agreement.
Pakistan is holding parliamentary elections next autumn and if the present opinion polls are anything to go by, the present government coalition is going to lose heavily to Imran Khan’s PTI party, which it replaced in a vote of no-confidence last April. Meanwhile the national economy is kept afloat by funds from “friendly countries”, Saudi Arabia, United Arab Emirates and Qatar, which have gifted and loaned funds and invested in public sector companies. China has also chipped in in a lesser degree through its CPEC program with Pakistan. The World Bank and ADB are waiting for the outcome of the IMF negotiations, but have allowed some funding for reconstruction after last summer’s deadly floods.
The domestic tensions between the government and the opposition and the coming elections have held back big Pakistani private investors. They seem to be waiting to see whom to talk with after the coming elections. The Army, traditionally the central powerbroker in Pakistan, has declared it would stay neutral in the political squabbles to come. The private sector has said, that it would invest (start investing again), when there are good projects to invest in and more predictability in politics. New investment is needed: According to the government, over 16 billion USD is needed alone for reconstruction after the floods. To this can be added the modernization of the energy sector, other necessary infrastructure projects and extending quality education to more students. This would also help the national economy: This year (2022) remittances from abroad brought Pakistan more funds than exports, albeit exports earnings were very low due to destruction brought about by the floods.
To sum up: The present government is looking for partners. Whoever is going to be in power after the elections will need partners and investment as well. The Pakistani private sector has stated they will invest, so funds don’t necessarily need to come from abroad. Finland’s trade with Pakistan is not at the level it could be. A similar country (with admittedly a different trade portfolio) Denmark has had trade with Pakistan that is about 2-3 times bigger than Finland’s trade with Pakistan.
Head of Mission, Embassy of Finland, Islamabad