Pakistan's economy faced its worst crisis, then recovered

The Crisis That Arrived in 2018

Muzamil opens the episode by inviting Sayem to explain Pakistan’s economic state. Sayem positions the question historically, comparing Pakistan’s position not to its past self but to competitors like Bangladesh, India, and Vietnam. The real measure of stability is not internal; it is relative standing.

When the current government took office in 2018, Sayem explains, “the worst crisis which we’ve seen in our lifetime” had just landed. The numbers were catastrophic. Pakistan faced a combined 32 billion dollar deficit in one year: a 20 billion dollar trade deficit (the gap between exports and imports) plus 12 billion dollars in debt repayment obligations. Against this, the state bank held no reserves. Sayem notes, “You had no money. Zero money in your reserves.”

To illustrate the scale of the repair job, Sayem uses a metaphor Muzamil returns to throughout the conversation. “If you take an example of your economy is a car, you have to travel on that car and you have to move on to the other side. But if you compare that Bangladesh, India, Vietnam, which are competitors with you are on that road, you’ll have to see where they are at this stage and where you are.”

In 2018, Pakistan’s car was broken down completely. The government’s task was not to accelerate; it was to get the vehicle back on the road.

The Stabilization Tools: Exchange Rate and Stimulus

The recovery had three main pillars. First, exchange rate correction. Sayem explains that the government stopped defending an artificially strong rupee and allowed the central bank to follow market-based exchange rates. When people say the government weakened the currency, Sayem clarifies, “the government has actually been out of it. It’s purely market. It’s independent.”

A weaker rupee made imports more expensive, reducing demand automatically. This addressed half the crisis: shrinking the trade deficit.

The second pillar was cash assistance. During COVID, the government provided direct cash transfers to 15 million people, unprecedented in Pakistan’s history. Muzamil emphasizes the transparency: “not in your religious affinity or in which area you are in it or in your political inclination.” When 15 million people spend inside the economy, Sayem explains, demand creates a multiplier effect. “Every one rupiah, which is spent in our economy, is sold from three or four rupiahs worth of goods and services.”

The third pillar was targeted business support: payroll assistance for small and medium enterprises so they would not lay off workers, and softened credit terms for 1.6 million businesses.

Remittances and the Export Turnaround

By 2021, the crisis-level pressure had eased. Sayem points to two markers. First, the trade deficit flipped into surplus for the first time in years. “Our $20 billion that was $3 billion in the past year and now the 6 months of this year is surplus, not in the deficit but in the surplus.” Exports have entered double digits, especially in December, a vital sign that production and competitiveness are returning.

Second, remittances from overseas Pakistanis jumped. Sayem interprets this as confidence. “It shows that the confidence of the overseas Pakistanis is better. And they are prepared to keep more money in Pakistan versus keeping money in a offshore.” Trust was returning.

Yet Muzamil presses on what comes next. Stability is not growth. The car is off the workshop floor and back on the road, but it is not accelerating. The government must now rebuild production capacity in agriculture, textiles, and pharmaceuticals to compete globally. Stability without growth means no new jobs, no wage increase, and young Pakistanis will leave.

Construction, Jobs, and Housing Shortage

The government’s response to job creation is the construction and housing initiative. Sayem describes it as the most comprehensive housing policy in Pakistan’s history, committing 300 billion rupees this year and an estimated 1.5 trillion rupees by 2021.

Why construction. Sayem states plainly, “the most labor intensive industry globally, not just Pakistan, is the construction industry.” For each housing unit built, two additional workers gain employment in construction activity itself, plus 40 linked industries benefit. If the government constructs one million houses in three years, Sayem estimates 2 million additional jobs can result.

This policy addresses a real problem Muzamil raises: the middle class pays inflated rents because housing is scarce, not because incomes are rising. When new units arrive, rents stabilize, freeing household cash for other spending. The multiplier runs again.

Bringing the Informal Economy Into the System

The sharpest question comes when Muzamil asks about tax compliance. Pakistan has only 2.5 million income tax filers. Yet the Prime Minister acknowledged 30 to 35 million potential taxpayers in the middle class. The gap feels like unfairness to salary earners: they pay tax, others do not.

Sayem separates income tax filers from total taxpayers. Every purchase incurs sales tax or GST, even toothpaste. The real issue is the retail sector. It contributes 20 percent of GDP but only 1 percent of tax revenue. “The customer is probably paying, but FPR or at least national kitty is not reaching,” Sayem says.

The government is deploying point-of-sale systems in large retail outlets to track GST automatically. It launched an experiment offering 5 percent GST (instead of 17 percent) for card payments. It is building Rast, a digital payments platform linking banks and mobile money providers so money can move between UBL and EasyPesa seamlessly.

These are not punitive. They are infrastructure. Sayem explains the endgame: “when the price is reduced, then automatically the compliance that people are willing to pay taxes will increase.” Lower rates plus easier compliance plus transparency will raise total revenue.

The Future for Young Builders

Muzamil concludes by asking what a 30 year old should do. Should he stay in Pakistan or leave.

Sayem’s answer is direct. The corporate job path his parents followed will not exist in five years. Jobs globally are being displaced by technology. The path forward is entrepreneurial. Sayem points to Careem, a Pakistani-founded ride-hailing company that started in the Middle East and expanded globally without owning a single car. “Smart people who are able to use technology to reach out to a bigger audience or a bigger market and they’re able to add some value.”

Venture capital is noticing. In the 2019-20 fiscal year, investors poured 27 million dollars into Pakistan even during COVID, Sayem notes. The building blocks are incomplete: payment gateways still cost businesses cash flow; regulatory support is thin. But the signal is clear. Young Pakistanis with ideas can raise money. The economy is not closed. It is opening.

“We are much better today than we were a few years back,” Sayem concludes. “It will take time before we see a lift-off… But directionally, we are going on that way.”