The year 2018 marked a pivotal moment in Pakistan’s economic history, defined by a turbulent combination of political transition, external financial pressures, and severe currency devaluation. As the Pakistan Tehreek-e-Insaf (PTI) government under Prime Minister Imran Khan assumed office on August 18, 2018, the promises of establishing a Scandinavian-style welfare state and an austerity-driven economic model were challenged by severe economic distress and a looming financial crisis.
In June 2018, before PTI formally took office, Pakistan faced a significant setback when the Financial Action Task Force (FATF), an inter-governmental body aimed at curbing money laundering and terrorist financing, placed the country on its “grey list.” This classification created immediate adverse impacts, substantially raising Pakistan’s external borrowing costs, complicating access to global financial markets, and deterring crucial foreign capital inflows necessary to stabilize an already fragile economy (IFAC, 2018).
Against this troubling economic backdrop, the incoming PTI government inherited what economists described as a yawning “twin-deficit problem”: a rapidly widening current account deficit coupled with a ballooning fiscal deficit. These twin deficits exacerbated an already precarious balance-of-payments scenario, with foreign exchange reserves declining significantly. According to the State Bank of Pakistan (SBP), the country’s forex reserves witnessed a drastic reduction of approximately US$7 billion during 2018 alone, placing immense strain on Pakistan’s ability to finance imports and service external debts.
Adding fuel to the economic fire, Pakistan experienced repeated devaluations of its national currency throughout 2018. A series of six significant interventions by the State Bank led the Pakistani Rupee to depreciate sharply, reaching approximately ₨143 against the US dollar by November 2018—a roughly 24% decline within just one year (Al Jazeera, 2018; SBP, 2018). The repeated and abrupt currency devaluations negatively affected investor confidence, intensified inflationary pressures, and increased the cost of debt repayments, further complicating Pakistan’s economic management.
The political promises of Imran Khan’s PTI to usher in “Naya Pakistan,” defined by transparency, austerity, and welfare-oriented governance, thus met immediate and daunting challenges. With a weakened rupee, declining foreign reserves, and the burden imposed by FATF compliance, Pakistan’s economic situation set the stage for an urgent financial lifeline. This economic turmoil inevitably forced the PTI government to seek assistance from the International Monetary Fund (IMF) in 2019, a move that carried profound implications for Pakistan’s subsequent economic trajectory and policy environment.
Ultimately, the confluence of political transition, external financial scrutiny by FATF, and a severe currency crisis significantly shaped Pakistan’s economic conditions in 2018, laying critical foundations for the challenging reforms and stabilization measures that would follow in subsequent years.
References:
- IFAC (2018). “Pakistan Added to FATF Grey List.” International Federation of Accountants.
- Al Jazeera (2018). “Pakistani rupee sees drastic devaluation amid economic woes.” Al Jazeera News.
- State Bank of Pakistan (2018). “Foreign Exchange Reserves Data.” SBP Annual Reports and Statistical Bulletins.
- Dawn (2018). “PTI Government Sworn in; Imran Khan Promises Austerity and Welfare State.” Dawn News.
