Pakistan was the wealthiest country in South Asia in 1973. Today, it is the poorest, with per capita income lagging far behind neighboring India, Bangladesh and Sri Lanka. The dramatic decline over five decades is attributed to unchecked population growth and decades of poor economic policy, according to a new report from the Atlantic Council.
The report, authored by Aasim M. Husain and published April 1 by the Atlantic Council, outlines how Pakistan’s working-age population ratio has remained low due to rapid population expansion, limiting domestic savings and stifling investment. Combined with chronic fiscal and external deficits, the country’s macroeconomic mismanagement has resulted in repeated economic crises and a crushing debt burden.
By 2023, Pakistan’s gross national income per capita had fallen to nearly half that of its regional peers. Its investment rate was less than half of its neighbors’, and its saving rate was only one-fifth as high. Weak investment in education and health left the country behind on key human development indicators, including school enrollment and life expectancy.
The report notes that the government has routinely relied on foreign borrowing to maintain an overvalued exchange rate, making imports cheaper but undermining export competitiveness. This strategy led to mounting debt, periodic foreign exchange shortages, and repeated currency devaluations.
A severe economic crisis emerged after the COVID-19 pandemic and was worsened by the global commodity shock following the Russia-Ukraine war. Pakistan’s external reserves fell below $4 billion in mid-2023, covering just two weeks of imports, while inflation soared to 38 percent. Servicing debt now consumes roughly 60 percent of government revenue—among the highest ratios in the world—leaving little room for investment in infrastructure or social services.
A 2024 agreement with the International Monetary Fund (IMF) has temporarily stabilized the economy. Foreign creditors agreed to roll over debt, oil prices have moderated, and inflation dropped to below 3 percent by early 2025. However, risks remain high. The IMF program’s focus on aggressive tax collection leaves limited space for needed increases in education, health and climate-resilient infrastructure spending.
The report warns that the speed of the current fiscal adjustment could backfire by undermining public support and stalling recovery. While Pakistan’s tax revenue effort is among the weakest globally, the report recommends a steadier approach to increasing tax collection, coupled with expanded social investment.
An alternative strategy proposed by the report includes broadening the tax base, slowing population growth through improved access to family planning, and increasing investment in girls’ education and health. These changes could improve the saving rate, expand the working-age population share, and create conditions for long-term growth.
The report argues that Pakistan’s economic turnaround will also depend on sustained concessional financing from international lenders. Without additional support, the country risks falling short of its development goals and remaining economically vulnerable.
Ultimately, the report concludes that reversing decades of economic decline requires comprehensive reform, responsible fiscal management and a strategic demographic shift. Without such steps, Pakistan is unlikely to regain its lost ground in the South Asian region.