Economic growth is the only exit |
The choice before the nation is now very much distinguishable — ‘grow or be left behind and No growth — No economic turnaround.’
Pakistan’s economic debate often oscillates between crisis management and temporary relief. Inflation rises — we tighten. The currency falls — we borrow. Reserves deplete — we negotiate. Yet amid this recurring cycle of firefighting, one central issue remains inadequately addressed: growth — sustained, inclusive and investment-led growth — is the real issue in Pakistan’s evolving economic landscape.
Recent months have brought a measure of macroeconomic stability. Inflation has moderated from its 2023 peak. The exchange rate has stabilised. Interest rates have begun to ease. The immediate threat of default has receded. These are important achievements. But stabilisation is not transformation. Stability without growth is stagnation deferred.
Pakistan’s long-term growth trajectory tells a worrying story. Once capable of sustaining 6–7 percent annual growth, the economy now struggles to maintain even 3–4 percent. For a country with one of the youngest populations in the world — adding millions to the labour force each year — such growth is depressing.
Without robust expansion the unemployment, underemployment and outward migration will intensify. The challenge is structural, not cyclical. Economic growth is fundamentally driven by investment — domestic and foreign. Yet Pakistan’s investment-to-GDP ratio remains among the lowest in emerging Asia.
Private sector investment has been constrained by policy uncertainty, high borrowing costs, and inconsistent regulatory frameworks. Foreign direct investment remains episodic and concentrated in a few sectors.
Investors seek predictability. Instead, they often encounter frequent policy reversals, overlapping jurisdictions, complex taxation, and weak contract enforcement. Incentive packages may be announced, but continuity is uncertain. Capital flows toward clarity and rule-based systems — not discretion and ambiguity.
If growth is to become the centrepiece of economic strategy, investment must be treated as a national priority, backed by institutional credibility rather than short-term administrative fixes.
Another structural barrier to growth is the cost of doing business. Pakistani enterprises operate under heavy burdens: elevated energy tariffs, cascading indirect taxes, cumbersome compliance procedures, and logistics inefficiencies.
Exporters struggle with delayed refunds. Manufacturers face unpredictable input pricing. Small and medium enterprises remain constrained by documentation requirements and limited access to finance.
Energy remains a critical constraint. Industrial tariffs often exceed those in competing economies such as Bangladesh and Vietnam. Volatile gas supply and shifting pricing formulas further complicate planning.
One of the most underappreciated impediments to growth lies in the lack of comprehensive digitalisation, particularly at the provincial level. While federal institutions have made incremental progress in digitising tax filings and customs procedures, much of the regulatory and administrative interface between businesses and the state remains manual, fragmented, and opaque.
Provincial departments — from land records and building approvals to excise, labour inspections and local taxation — often operate through discretionary, paper-based systems. This exposes businesses to delays, arbitrary interpretations of rules and, regrettably, rent-seeking behaviour.
When processes depend on personal interactions rather than transparent digital workflows, the level playing field disappears. Inconsistent application of rules penalises compliant businesses while rewarding those able to navigate informal channels.
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Such an environment discourages formalisation, deters new entrants, and suppresses productivity. Investors — particularly foreign investors accustomed to digital governance and automated compliance systems — view such opacity as systemic risk.
Digitalisation is not merely a technological upgrade; it is an anti-corruption and competitiveness reform. End-to-end e-governance, automated approvals, integrated provincial databases, and publicly accessible regulatory timelines would dramatically reduce discretion and enhance transparency.
Without such reforms, businesses will continue operating at the mercy of fragmented bureaucratic ecosystems.
Pakistan’s export base remains narrow and concentrated largely in low-value textiles and primary goods. While textiles constitute strength, overreliance on limited categories exposes the economy to global price and demand shocks.
Competing economies have diversified into electronics, engineering goods, pharmaceuticals and high-value services. Pakistan has demonstrated promise in IT exports, yet scale remains modest relative to potential. Without moving up the value chain, growth will remain externally constrained, leading to recurring balance-of-payments pressures.
Governments, facing revenue pressures, rely excessively on indirect taxation that increases the burden on documented sectors. Breaking this cycle requires broadening the tax base, digitising revenue systems, and ensuring equitable enforcement. If growth is indeed the real issue, policy must be reorganised around it.
First, institutionalise macroeconomic stability through credible medium-term fiscal and monetary frameworks insulated from political cycles.
Second, reduce structural business costs through energy sector reform, tax simplification, and logistics modernisation.
Third, accelerate digitalisation — especially at provincial and local levels — to eliminate discretion, curb corruption, and create a transparent, level playing field.
Fourth, prioritise export-led diversification and integration into regional supply chains.
Fifth, invest in human capital to transform demographic pressure into a productivity dividend.
Beyond stabilisation Pakistan stands at a pivotal juncture. The immediate crisis may have eased, but the deeper issue remains unresolved. Stabilisation buys time; only growth secures the future.
Without sustained growth of 6 percent or more, Pakistan cannot generate adequate employment, reduce poverty meaningfully, or escape recurring external vulnerabilities.
The choice before policymakers is clear: continue managing crises — or build a system that generates enduring growth leading to a sustainable economic turnaround in real terms.
Copyright Business Recorder, 2026