This is a huge topic, and most of the very important stuff is systemic and long lasting. For example, we can debate what a lack of land reforms has done to limit us and allow for a reinforcement loop of policies for continuity, weak institutions due to a lack of long term political stability, low literacy rate and poverty traps made worse due to other failings.
But if we limit the scope of these matters only to what’s relevant to this thread. Pakistan has a long established history of policies that cause or allow financial crises to develop and then once every few years we go to the IMF. This latest phase was largely the result of using of policy imbalances favouring imports and expenditure as a means to drive growth vs better competitiveness and export led growth. We artificially inflated PKR by using up SBP reserves (pegging), this means imports are cheaper and our already low value exports become less competitive, it’s also accompanied by strong internal demand. If this policy is used too much, you will burn through all fx reserves, and will invariably come knocking to the IMF and other multilateral lenders again. And the more of that debt you take on, the more interest payments are then needed to be paid out of the federal budget.
Basically, in previous years we were achieving 5-6% growth by using one sided policies that would cost us later on. Our economic growth at 5-6% can’t be sustained unless the current account deficit is reduced. Think of it like a car, you can go very very fast, but if your engine is not built for high performance, if your suspension and other parts cannot take the stress, and if you are achieving high speed by pushing the car to its limit. Something will eventually break. What’s needed is to improve the components and safely cruise at a higher speed (growth), rather than pushing a flimsy car to go faster than it is designed to go. There are others issues limiting our growth too. But this has been a major one in recent years.
