In absolute dollar terms, Pakistan’s economy is 27th largest in the world. The semi-industrialized economy encompasses textiles, chemicals, food, and agriculture. Karachi and Punjab’s urban centers are home to diversified economies. Past internal politics, population booms, and confrontation with India has taken its toll on the economy in past decades. The recent government policies, foreign investment, and access to global markets have positively poised the country. Pakistan has seen solid macroeconomic recovery in the last decade.

Privatizing the banking sector and gains in the industrial and service sectors have spurred growth of the gross domestic product. In 2005 World Bank named Pakistan top reformer in its region and among the top 10 globally. Fiscal deficits are manageable.

Economic History

The first five decades following Pakistan’s independence from the UK in 1947 saw higher than average economic growth rates. The 1960s saw Pakistan as a model of economic growth and the country received praise for its economic progression. South Korea copied Karachi’s second “Five-Year Plan.” The World Financial Center in Seoul was designed and modeled after the city. Public debt led to slower growth in the 1990s. War in 1965 and 1971 adversely affected growth. Nationalization in the mid-1970s brought a sharp rebound. Recovery was felt in the 1980s from deregulation, remittances from expatriates, and an increase of foreign aid.


Historically, Pakistan’s GDP has grown every year since 1951. Though viewed by parts of the world as unstable, the economy has proven unexpectedly resilient against adversity. The biggest threat to the Pakistan economy is inflation. At more than 9% in 2005 and nearly 8% in 2006, that was just the beginning. A surge in global petrol prices led to 2008 inflation as high as 25%. Tighter monetary policy is in pursuit to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances.

Few resources have been devoted to socio-economic development and infrastructure (though this is changing). Social services are considered inadequate. Combine that with high birth rates and immigration; you’ll find that a very large number of young people are entering the labor market. Political red tape has led many businesses to operate underground. More women are also entering the workforce.


The Pakistani government has made substantial economic reforms since 2000. Medium-term prospects for job creation and poverty reduction are the best in nearly a decade. Government revenues have greatly improved as a result of growth and tax reforms. Pakistan is cutting tariffs and improving infrastructure to assist exports. Islamabad doubled development spending from the 1990s to 2003.

Pakistan’s relative strength in low labor cost has the country poised to replace China as the largest textile manufacturer. Pakistan will benefit from freer trade in agriculture as well. Reduction in money market interest rates, expansion in credit quantity, and changing investment patterns have resulted from stability in monetary policy. Pakistan is pursuing an export-driven model of economic growth.

Pakistan’s Economy Today

Current inflation and economic crises felt worldwide are felt in Pakistan. There is a crisis in Balance of Payment. Despite this Goldman Sachs identified Pakistan as “The Next Eleven,” having a high potential of becoming one of the world’s largest economies in the 21st century.

In 2007 Pakistan’s foreign reserve was a respectable $16.4 billion. Trade deficit was controlled; exports boomed. Things went stagnant in 2008. Security concerns created instability. High global commodity prices and capital flight from Pak to the Gulf took a double blow to Pakistan’s economy. The value of the Rupee fell quickly to the US Dollar.

Inflation is expected to drop soon and growth is scheduled to pick up in 2011. Once again Pakistan looks as if it will overcome crisis. A strong and growing middle class (30-35 million people) have promising purchasing power. The upper-middle class and upper class have grown as well. Pakistan ranks better than the median on measures of income inequality. Poverty levels have decreased. As Pakistan’s informal economy continues to document and assess more improvements will be seen.