Few narratives in economic history are as compelling as Pakistan’s recent journey—a story filled with adversity followed by resilience and strategic reform. Pakistan first got global attention in early 2017 when PwC published its “Long View” report, saying the country would be the 16th largest economy in the world by 2050.
Shortly thereafter, investors curiously observed Pakistan’s descent into debt, its leadership’s denial of ground realities, and its unwillingness to engage with the IMF and World Bank, followed by political changes and the catastrophic floods in 2022.
And everyone stopped keeping track some time in 2022 and wrote off the country’s potential to become one of the world’s largest economies. But watching Pakistani Finance Minister Muhammad Aurangzeb at the World Economic Forum in Davos has reignited interest among economists and investors globally.
Pakistan’s Economic Abyss
In the early 2020s, a web of economic challenges ensnared Pakistan. Political instability, exacerbated by a leadership in denial, eroded investor confidence. The ex-Prime Minister Imran Khan was vocal about being anti-IMF and openly reneged on commitments made in International Monetary Fund (IMF) programs.
After his ouster, catastrophic floods hit the country, impacting 30% of the country’s land and affecting millions of Pakistanis. The nation grappled with soaring inflation, which peaked at over 25% in 2023, and a burgeoning fiscal deficit that strained public resources.
While Pakistan urged the world to take action on climate change, the IMF was reluctant to re-engage due to experiences with the past government. Together with dwindling foreign reserves, this deepened the crisis and heightened concerns over a potential default.
The Turning Point
Aware of the fragile state of the country’s economy, the new government under Prime Minister Shahbaz Sharif initiated a series of bold reforms to stabilize the economy through fiscal consolidation, energy sector reforms, and measures to control inflation. After strong engagements by the now Finance Minister Muhammad Aurangzeb, the IMF $7 billion Extended Fund Facility agreement was signed in September 2024.
The State Bank of Pakistan adopted an aggressive monetary easing strategy. From June 2024 to January 2025, the central bank slashed the policy rate by 1,000 basis points, bringing it down to 12%. This marked the sixth consecutive rate cut, reflecting a concerted effort to stimulate economic activity amid a significant decline in inflation, which had fallen to 4.1% by December 2024—the lowest in over six years.
Signs of Recovery
The reforms are beginning to bear fruit. In its October 2024 update, the World Bank noted that the country’s economy had stabilized, with growth recovering to 2.5% in the fiscal year ending June 2024. Projections indicated a further acceleration, with Gross Domestic Product (GDP) growth expected to reach 4.5% by 2025. Inflation, which had been a persistent thorn, moderated to 12%, signaling the effectiveness of the implemented policies.
Significant investments further evidenced international confidence. Saudi Arabia’s Manara Minerals announced plans to acquire a 10-20% stake in Pakistan’s Reko Diq copper and gold mining project, a venture valued at $9 billion and poised to be one of the world’s largest copper mines. This investment highlights the country’s mineral potential and reflects growing trust in its economic trajectory. The UAE has doubled down its investments in Pakistan through state-owned enterprises such as Etisalat (E&) buying out one of Pakistan’s biggest telecom players (Telenor) to merge into its existing operations (Ufone, PTCL, and Onic).
Recently, Pakistan scored positively on the Bertelsmann Transformation Index or BTI (which tracks transformation towards democracy, better governance, and economy) which came out towards the end of 2024. The Overseas Chamber of Commerce & Industry (OICCI) in Pakistan also came out strongly, improving 20% from its lowest point in a decade in 2023. The World Bank’s Country Policy and Institutional Assessment (CPIA) has also come out indicating strong positive movement by Pakistan in its recent release at the end of 2024.
Swerving their way back onto the global economic map
At the WEF in Davos last week, Finance Minister Muhammad Aurangzeb announced that Pakistan secured a $1 billion loan agreement with two Middle Eastern banks at an interest rate between 6% and 7%.
At a panel with The New York Times’ Katie Kingsbury, Aurangzeb detailed the export sectors Pakistan is focused on, such as IT (and IT-enabled services) and textiles. He emphasized the country’s commitment to sustainable development, highlighting a reduction in the debt-to-GDP ratio from 78% to 67%.
In meetings with Saudi Arabian and Qatari finance ministers, Aurangzeb discussed enhancing economic cooperation and attracting foreign investment.
The new leadership is actively repositioning Pakistan from a debt-ridden and badly managed economy to a tight ship back on track to take its spot in the G20. With their new Strategic Investment Facilitation Council (SIFC) setup and improving ease of business (and with the shifts in the global political climate), U.S. companies will start looking to invest in the country once again within the next couple of years.