| DR. MUHAMMAD SHAHID |
| Pakistan’s economy, long defined by boom-and-bust cycles, is once again at a crossroads. The fiscal year 2025 closed with a modest uptick in growth, thanks to stabilizing reforms under the IMF Extended Fund Facility, improved investment flows, and renewed confidence in Islamabad’s ability to avert crisis. The Asian Development Bank (ADB), in its latest Asian Development Outlook, forecasts growth at 3% for FY2026, an improvement, but hardly transformative. Behind the cautiously optimistic numbers lies a sobering truth. Pakistan’s recovery is fragile. The economy remains overly reliant on external bailouts and inflows, while domestic fundamentals including tax capacity, productivity, exports, governance, and climate resilience remain weak. Unless these structural issues are addressed, the current recovery risks becoming yet another short-lived reprieve rather than a turning point. External Fixes, Internal Weaknesses For decades, Pakistan’s economic playbook has revolved around crisis management. Each cycle begins with fiscal and balance-of-payments distress, followed by an IMF rescue package, temporary stabilization, and then slippage into familiar patterns of political expediency and structural neglect. The current moment is no exception. While external buffers have improved and remittances continue to play a stabilizing role, the fundamentals of the domestic economy remain shaky. Recommendations: A) Tax Mobilization: With a tax-to-GDP ratio hovering around 9%, Pakistan collects far less revenue than peers at similar levels of development. This starves the state of resources for health, education, infrastructure, and climate adaptation. B) Energy Sector Debt: Circular debt in the power sector has ballooned past PKR 2.6 trillion, a ticking fiscal time bomb that undermines both investor confidence and energy reliability. C ) Export Competitiveness: Despite repeated export promotion policies, Pakistan’s export basket remains narrow, heavily dependent on textiles and uncompetitive in global markets. D) Climate Vulnerability: Recurring floods, droughts, and heatwaves erode agricultural output, destroy infrastructure, and displace communities. Without systemic resilience planning, climate shocks will keep wiping out gains. Pakistan has been propped up by external inflows, but external fixes cannot substitute for domestic fundamentals. The Political Economy Trap The heart of Pakistan’s economic malaise lies in its political economy. Reforms that are technically sound often falter against entrenched interests and populist pressures. Tax Reform Resistance: Powerful elites including traders, agriculturists, and industrial lobbies resist broadening the tax base. Instead, the burden falls disproportionately on salaried classes and indirect taxation, deepening inequities. Subsidy Politics: Energy and commodity subsidies, though regressive, are politically expedient. Governments have struggled to phase them out, fearing backlash from voters and interest groups. Privatization Paralysis: State-owned enterprises, from PIA to Pakistan Steel Mills, continue bleeding billions annually. Yet privatization or restructuring remains stalled, trapped between union resistance and political patronage. Short-Termism: Policymakers often prioritize electoral cycles over long-term reforms. IMF commitments are embraced when crisis looms, only to be abandoned once conditions stabilize. This trap produces a pattern. Reform is initiated, resisted, diluted, and eventually reversed. The outcome is stagnation. Why Fundamentals Matter Sustaining growth requires more than IMF stabilization or multilateral development lending. Strong domestic fundamentals are the backbone of resilience. For Pakistan, this means building institutions and systems that can withstand shocks rather than crumble at the first sign of turbulence. Fiscal Capacity: Without significant increases in revenue collection, Pakistan cannot fund social protection, education, health, or infrastructure. A larger tax base means less reliance on debt and external financing. Energy Security: Addressing circular debt, reducing transmission losses, and ensuring cost-reflective tariffs are critical to ending the endless cycle of power sector bailouts. Diversified Growth Drivers: Overreliance on agriculture and textiles makes the economy vulnerable. Investments in IT, value-added manufacturing, and services are essential. Climate Resilience: Integrating climate adaptation into fiscal and development planning will be crucial for protecting livelihoods and sustaining agricultural productivity. Policy Consistency: More than reforms, Pakistan needs credible commitment. Consistency across political cycles will determine whether external partners trust Islamabad’s reform trajectory. Institutional Stability: Insulate economic policy from political cycles by empowering autonomous regulatory bodies and ensuring parliamentary oversight of reforms. These measures are not novel. They have been recommended repeatedly by economists, lenders, and reformers. The missing ingredient has always been political will. The Bottom Line is Pakistan has been here before on the edge of crisis, rescued by external financing, and buoyed by a temporary sense of stability. What has been missing is the translation of stabilization into sustainable growth. Strong domestic fundamentals including fiscal capacity, energy reform, diversified exports, climate resilience, and institutional credibility are not luxuries but are prerequisites for survival. Without them, Pakistan will remain trapped in its perpetual cycle of crisis and bailout. The message from the ADB and other lenders is clear: the window of opportunity is open, but not indefinitely. Whether Pakistan seizes this moment or squanders it will determine if today’s fragile recovery becomes tomorrow’s resilience or just another false dawn. |
