The year 2024 marked a transformative yet tumultuous chapter for Pakistan’s economy, characterised by a blend of breakthroughs and setbacks. From record-breaking stock market performance to grappling with persistent inflation and unresolved systemic issues, the economic narrative reflected both resilience and fragility. Shaped by crucial policy decisions, global trends, and structural challenges, the year encapsulated a complex journey of growth amid volatility.
One of the brighter spots was the Pakistan Stock Exchange (PSX) hitting record highs. Buoyed by improved investor sentiment and foreign inflows, the benchmark KSE-100 index surpassed expectations, reflecting optimism over macroeconomic stabilisation.
This rally was largely attributed to progress on the International Monetary Fund (IMF) front. The government’s ability to meet IMF conditions fostered confidence in international markets. Structural reforms, although stringent, began yielding results, particularly in narrowing the fiscal deficit and stabilising foreign exchange reserves.
Despite these gains, structural challenges persisted. The tax-to-GDP ratio remained low, corruption and inefficiencies plagued public institutions, and political instability cast a long shadow over economic decision-making. The frequent turnover of key economic policymakers further complicated long-term planning.
The PSX delivered a record-breaking performance in 2024, buoyed by a confluence of factors. Farrukh H Sabzwari, CEO of PSX, said: “2024 was a year marked by political and economic stability for Pakistan, driven by several key factors including the much-awaited general elections in February and a smooth transition of government.”
Key economic achievements included the approval of a $7 billion Extended Fund Facility (EFF) from the IMF, GDP growth of 2.52% after negative growth in FY23, and an upgrade in Pakistan’s sovereign credit ratings by Fitch and Moody’s. Stabilising foreign exchange reserves, which grew from $8.2 billion to $12.08 billion, and cooling inflation, which fell to 4.9% by November 2024, further bolstered market sentiment.
The KSE-100 index achieved an 80% return in PKR terms, reaching an unprecedented 100,000 points. Sabzwari noted that “monetary easing of 900 basis points since June 2024 enhanced the attractiveness of equity as an asset class”.
Sectors such as banking, fertiliser, oil and gas exploration, cement, and pharmaceuticals led the rally, with top-performing stocks including Fauji Fertiliser Company, Mari Petroleum Company, United Bank Limited, Oil and Gas Development Company, and Engro Fertiliser. However, challenges such as persistent foreign investor outflows, public misconceptions about capital markets, and liquidity issues in sovereign bonds underscored areas needing attention.
Tahir Abbas, Head of Research at Arif Habib Limited, said: “The KSE-100 index posted an impressive return of 76.8% due to robust domestic liquidity, stable currency, and higher profitability.”
Former finance minister Miftah Ismail paints a grim picture of the year. “This government has done nothing, absolutely nothing to rise up to the challenges facing our economy,” he said. His sharp criticism reflects frustration with the lack of meaningful progress on promised reforms.
Miftah highlighted the government’s failure to deliver on commitments made to the IMF. “The government said it would undertake pension reforms. It has not done it. The government said it is going to tax shopkeepers. That’s not done. The government said it would reduce some government ministries, [but] it has not done it. The government said it will ask the provinces to raise agriculture taxes. Not done. The government said that we will form a fiscal pact and some expenses will be shared or transferred to the provinces, such as [BISP]. That’s not done,” he said, listing unfulfilled promises one by one.
He accused the administration of prioritising its political survival over necessary economic measures, such as reducing ministries, devolving powers to provinces, and balancing fiscal policies.
Debt remained an overarching concern. Pakistan’s external debt exceeded $130 billion, putting immense pressure on repayment schedules. Despite a partial reprieve through rollovers from friendly nations, the repayment obligations loomed large, compelling the government to explore innovative financing solutions. Domestic debt, too, burgeoned, driven by fiscal shortfalls and reliance on borrowing to fund expenditures.
The lack of fiscal discipline is a critical issue. “We are in a debt trap where the net governmental revenues after taxes are less than the interest that we have to pay on the debt,” Ismail explained, calling for the government to widen the tax base and form commissions for the National Finance Commission (NFC) Award.
In an otherwise bleak economic landscape, agriculture emerged as a rare bright spot. Former finance ministry adviser Dr Khaqan Hassan Najeeb highlighted a robust performance in this sector, which grew by 6.3% in FY24. “Wheat production surged by 11.6%, cotton production rebounded by 108.2%, and rice production increased by 34.8%,” he noted, attributing this success to favourable weather conditions and policy interventions.
The agriculture sector’s success helped offset weaknesses in other areas, contributing to a modest GDP growth of 2.5%. However, systemic issues such as low productivity and inadequate investment continue to plague the sector.
The rupee-dollar parity also remained a focal point of economic discourse. The rupee displayed intermittent stability, closing the year at around PKR280 to a dollar, after recovering from earlier dips.
This recovery was driven by tighter monetary policies and controlled import bills. Yet, the currency’s fragility underscored Pakistan’s vulnerability to external shocks, especially given the country’s reliance on remittances and exports, both of which faced headwinds due to global economic slowdowns.
Arif Habib Limited Head of Research Sana Tawfiq told Geo.tv that the PKR (Pakistani rupee) against the dollar has been stable this year.
“On the domestic front, remittance inflows and measures against speculation helped stabilise the rupee. Administrative corrective measures, such as anti-smuggling initiatives, ensured reduced speculation in the market. The interbank and open-market rates now show a minimal difference of Rs1-2, within normal ranges.
“Thanks to these measures and the IMF’s conditional ranges of +/- 0.5%, there’s no need for interventions. This also counters discussions about potential default risks. The IMF programme allowed for tough but necessary measures for recovery and eventual growth. The government had to act, including reforms in taxation and stabilising the fiscal framework.”
Going forward, she said sustaining manageable deficits, remittance inflows, and minimal interbank-open market gaps are crucial factors.
The State Bank of Pakistan (SBP) played a crucial role in maintaining macroeconomic stability. By keeping interest rates high for most of the year, the central bank successfully curbed inflation, which eased from its alarming peak. Economist Ammar Habib Khan commended the SBP’s efforts. “The SBP played a critical role here by keeping rates high to induce stability in the system, thereby reducing inflation in the process,” he said.
In June 2024, the Monetary Policy Committee reduced the policy rate by 150 basis points to 20.5%, reflecting the easing inflationary pressures. Dr Najeeb noted that this adjustment supported growth, albeit modestly. However, the high interest rates earlier in the year dampened industrial activity, leaving the sector struggling to regain momentum.
Pakistan’s continued engagement with the IMF was a defining feature of 2024. Tawfiq emphasised the significance of meeting IMF conditions. “We successfully completed the IMF programme. At the end, we fulfilled the pre-requisites for receiving the IMF’s standby facility, followed by long-term facility approvals,” she said.
The IMF’s support, along with financial assurances from friendly countries, helped stabilise the country’s dwindling foreign exchange reserves. From a precarious low of $4 billion, reserves were rebuilt, thanks to inflows from the Asian Development Bank (ADB) and record-high Foreign Direct Investment (FDI) in the first nine months.
However, reliance on IMF programmes remains a double-edged sword. While necessary for short-term stability, it underscores Pakistan’s inability to generate sustainable economic growth without external assistance.
“The reliance on IMF programme is justified because without the IMF programme, we would go bankrupt and that is not something we would like to have. The reliance of the government or the governments getting the IMF programme is the right thing to do. And the conditions are also justified that the IMF has outlined and that the government promised that it would undertake. But it has done nothing.
Experts agree that sustainable economic recovery hinges on implementing long-overdue structural reforms. Dr Najeeb outlined a roadmap that includes fiscal consolidation, energy sector reforms, and privatisation of state-owned enterprises (SOEs). “By focusing on these strategic areas, Pakistan can work towards reducing its reliance on the IMF programmes while fostering a more self-sustaining economy,” he said.
Ismail echoed the need for privatisation, lamenting the government’s failure to sell struggling entities like Pakistan International Airlines (PIA). “The government really should have undertaken the privatisation of PIA. But because of dragging its feet and actually not having the right intentions, it made all the serious parties run away,” he said, adding that has thwarted our privatisation programme, and in the nine months of this government, “we have not seen a single advertisement for the privatisation of any of the utility companies, any of the, you know, distribution companies.”
The inefficiency of the energy sector remains a major drag on the economy, contributing to high circular debt and unaffordable power tariffs. Reducing technical and non-technical losses in the power sector is essential, as is rationalising government expenditures, which have ballooned irresponsibly.
While macroeconomic indicators showed signs of improvement, the impact on ordinary Pakistanis has been harsh. Poverty rates increased from 40.2% in FY23 to 40.5% in FY24, highlighting the disconnect between macroeconomic stabilisation and the lived realities of the population. Inflation, although lower than its peak, continues to erode purchasing power, and high tax rates on salaried individuals and businesses stifle growth.
Dr Najeeb stressed the importance of inclusive policies. “Economic stabilisation is not sufficient to alleviate the hardships faced by many citizens. Structural challenges such as inadequate education and high rates of stunting persist, exacerbating socio-economic conditions,” he said.
Looking ahead, expectations for economic growth remain modest. Most experts predict GDP growth of around 2-3% in 2025, with inflation falling to single digits. However, achieving these targets will require disciplined fiscal management and meaningful reforms.
Khan offered a straightforward lesson from 2024: “Stop giving subsidies.” Reducing reliance on the IMF programmes will require Pakistan to break free from unsustainable fiscal practices and invest in productive sectors.
The lessons of 2024 are clear: Pakistan must use the breathing room provided by the IMF to address its structural deficiencies. As Dr Najeeb aptly put it: “The authorities have to build the necessary professional setups to solve the structural issues focusing on deregulation, private sector participation, reducing inefficient expenditures, and finding new engines of growth.”
Despite the former finance minister not really “expecting much growth in the economy,” he recommended reducing tax rates, privatisation of utilities, bringing about empowered local government, constitutionally empowered local government, and fiscally empowered local government, which are paid directly by the NFC award, reduction of tax rates, and a complete rationalisation of government expenses and cutting of government expenses, pension reforms for sustainable growth in 2025.
“You know, our population growth [increases] by 2.4%. So, any growth less than 3% really is no growth. But the way our economy is structured and the way the government is doing things, I expect not much growth. Inflation has come down not because of anything the government has done, but because the commodity prices worldwide have gone down, including wheat, cotton, rice and cement. Most importantly, petroleum products. LNG, urea, DAP, etc. And those things are in reflecting into lower inflation rates in Pakistan, but even with lower inflation rates, we will see some reduction in policy rates, but I don’t really see much growth happening in Pakistan because this government has really wasted the whole, critical year for Pakistan.”
However, for the PSX CEO, the outlook for 2025 remains cautiously optimistic, with indicators suggesting continued market momentum. Sabzwari predicted: “Political stability will remain a key consideration for investors, alongside the commitment to the IMF programmes.”
He also highlighted the expectation of a re-rating of the KSE-100 P/E ratio to historical levels, driven by declining inflation rates and further monetary easing. Abbas shared similar optimism, saying: “We expect the PSX will remain bullish in 2025 as valuations are still very attractive. Massive local liquidity and subdued performance by other asset classes will further route liquidity into the market.”
The return of single-digit fixed-income yields may channel additional investments into equities, while mutual funds, which absorbed significant foreign selling in 2024, are expected to sustain their positive trajectory. Nevertheless, risks such as political instability and global commodity price fluctuations remain.
Sabzwari pointed out that “public misconceptions about capital markets remain a challenge, causing missed opportunities for long-term returns compared to other asset classes”.
With the PSX delivering impressive five- and 10-year annualised returns and emerging as one of Asia’s best-performing markets in 2024, the foundation for growth in 2025 appears solid, contingent on maintaining stable political and economic conditions.
The year 2024 has been a rollercoaster for Pakistan’s economy, marked by hard-earned stability but blemished by missed opportunities. The government and central bank managed to avert immediate crises, but the absence of meaningful reforms leaves the country vulnerable to future shocks.
As the year ends, Pakistan stands at a critical juncture. The choices made in the coming months will determine whether the country can finally break free from its cycle of economic instability or remain trapped in a recurring pattern of crises and external dependence. The clock is ticking.
Afreen Mirza is a staffer at Geo.tv. She posts on X@afreenmirza97
