Azad Jammu and Kashmir’s Rising Economy

When the world looks to Pakistan, it tends to focus on its biggest provinces or political upheavals. Lurking in the wings, away from the headlines, is Azad Jammu and Kashmir (AJK), which has been demonstrating how smaller regions can develop and present a role for resilience within a complex federation. A close inspection of the statistics shows an economy that, while small, is steadily building efficiencies vis-à-vis its larger provincial counterparts in Pakistan.

Take revenue and fiscal discipline as one example.  AJK accounts for about 8 percent of Pakistan’s GDP, and significantly relies on foreign remittances, which are more than a quarter of its economic activity. This reliance on remittances provides the region with resilience that is often duplicated by many of the larger provinces. Equally astonishing is AJK’s tax-to-GDP ratio of 7.77 percent, which outperforms Punjab (3.9 percent), Sindh (5.2 percent), and Khyber Pakhtunkhwa (1.4 percent). Only Gilgit-Baltistan does better, at 11 percent. To an outside observer whose normal realm of reference concerns fiscal weakness in Pakistan through a structural lens, this certainly stands out, as it illustrates that the contradictions of a federation are that there are parts of the country with stronger compliance and financial management actually developing.

Employment patterns convey a similar narrative. Approximately 35% of AJK’s population works in the public sector or security jobs, the highest percentage in all of Pakistan. Although this reflects the small scale of the private sector and industry, it enables good social stability, income stability, and a pathway for skilled young people. In contrast, Balochistan has poverty rates above 70%, while the unemployment rate in AJK is approximately 22% lower than in Sindh (43%) or KP (49%). These numbers raise questions about the stereotype that border regions are always the most economically fragile.

AJK’s struggles with agriculture must be viewed in context. AJK grows a total of about 276,000 acres of crops, far less than Sindh at 8.22 million acres or Punjab at 12.5 million. Wheat production allows approximately 20% of domestic demand, necessitating subsidized imports. But this isn’t limited to AJK. GB is hampered by a short growing season, and Balochistan’s changing climate gives similar results. What AJK has that is different is buffering and solid remittance patterns, which stabilize household demand. Using this sort of remittance capital as policy allows for an opportunity to create more substantial capital inflow by using community-based horticultural crops or otherwise agro-industry, and to turn subsistence farming into a reasonably sized export industry.

Urbanization metrics also provide evidence of manageable growth rates. With 17.4 percent being urbanized, AJK is less urbanized than Punjab or Sindh, but on par with GB. The limited rate of urbanization has, for now, meant that urbanization pressures on service delivery have not accelerated. Unlike megacities, such as Karachi or Lahore, where lots of people migrate to cities quickly, and this is putting pressure on destination cities’ services and infrastructure, the towns in AJK have options for thinking about well-planned, low-carbon, and sustainable urbanization. If these towns invest in housing, sanitation, and digital infrastructure, they could be examples of medium-sized urban area development.

Most international remote analysts are mistaken when they do not factor in the positive effects of remittances on fragile economies. In AJK, the diaspora does much more than send remittances. The families invest remittances into education, health, and housing, which all generate positive multiplier effects that strengthen human capital and enhance living standards. The positive impact of remittances explains why poverty indicators are marked better in AJK compared to other provinces, which have a big economy but no dependence on remittances. The positive effects of remittances explain why AJK has some of the highest literacy rates in Pakistan and better-than-average health indicators.

The differences among the provinces reinforce these dynamics. Sindh has hubs of industry, and Punjab has enormous agricultural output, but both are dealing with issues of equity and waste of finance. Khyber Pakhtunkhwa is dependent on remittances and is challenged by the disruption caused by insurgency. Balochistan, though it has large areas and natural wealth, is still an underdeveloped province. In contrast to all these issues, AJK’s consistent, albeit slight, uphill journey now appears to represent less a distinction from the provinces of Pakistan and more a micro-exemplar of the benefits of a balanced revenue stream, remittance inflow, and disciplined governance.

Challenges remain. We are not yet self-sufficient in wheat; we need to create jobs outside of the public sector; we need to be more integrated into the value chains of the country. But we have opportunities. The Special Investment Facilitation Council’s efforts to connect with foreign direct investment can also intersect with AJK in the shape of IT outsourcing parks, tourism zones, and small renewable energy projects. Diaspora bonds can channel remittance inflows for productive purposes where they are appropriately designed using transparent structures. It is sensible to pursue growth in the services sector rather than heavy industry, given the availability of literate citizens and the scarcity of land.

For observers from abroad, the takeaway is clear. Pakistan’s story is not uniform; areas like AJK are creating a new economic story of their own. AJK serves as a case in point, as it practices diaspora remittance, fiscal austerity, and stability. Ultimately, AJK is showing that smaller economies can rehabilitate within larger federations. In an era where non-aligned or periphery states are typically the most impacted by global shocks, this obfuscated success is worthy of more prominence.