Pakistan enters a new fiscal year burdened by the challenges of the previous one, according to the Economic Survey of Pakistan released June 9 in Islamabad. The report details the difficult conditions of fiscal year 2022-23, translating abstract figures into tangible hardships for millions of citizens.
Inflation averaged 29.2 percent over the first 11 months, reaching its highest level in decades. Food inflation spiked to 40 percent in May alone, creating a crisis for households that allocate most of their income to food purchases. To curb demand, the central bank raised its policy rate to 21 percent, making borrowing prohibitively expensive for both businesses and families.
Mortgage payments, car loans, and business expansion plans have all been affected by this rate increase. The government’s debt servicing costs consumed 60 percent of tax revenues, meaning 60 paise of every rupee collected in taxes went toward interest payments on past borrowing.
This leaves limited funds for schools, hospitals, roads, or disaster relief, which is urgently needed following the 2022 floods that submerged one-third of the country. The floods destroyed crops and livestock, causing cotton production to fall 34 percent and rice output to drop 22 percent. Farmers who lost their harvests now face a second year of losses.
Agriculture, initially projected to grow 4.5 percent last year, is now forecast to grow just 0.1 percent. Industry is expected to shrink by 2.1 percent, with large-scale manufacturing down 3.6 percent.
Reduced factory output means fewer jobs, lower incomes, and less tax revenue for the government. The services sector, the largest part of the economy, is barely growing at 0.1 percent. The GDP growth target for the year is 0.29 percent, a sharp decline from 6 percent the previous year, representing a collapse rather than a slowdown. The balance-of-payments crisis, political instability, and the floods all occurred simultaneously.
The current account deficit remains a pressure point, with external debt and liabilities standing at $126.3 billion as of March 2023—a substantial foreign currency obligation that must be serviced. The fiscal deficit is projected at 7 percent of GDP, while the primary deficit, excluding interest payments, is expected to be 0.4 percent.
Without the interest burden, the government is nearly balancing its books, but with interest, the gap remains wide. Finance Minister Ishaq Dar stated that the economy faces headwinds from both domestic and external factors. The central bank’s 21 percent policy rate is a blunt tool that will curb inflation but also choke growth.
An IMF program, if it proceeds, would bring additional conditions including more austerity, tax hikes, and subsidy cuts. While painful, the alternative is default.
For ordinary Pakistanis, the coming months appear difficult. Food prices remain high, jobs are scarce, borrowing costs are prohibitive, and the government has limited capacity for relief spending. The 2022 floods remain a fresh wound.
The economic survey indicates the country is in a fight for stability, with the outcome still uncertain.
