Faiz Ur Rehman
IN Pakistan, public anger often erupts over visible economic decisions—be it a new federal budget, rising oil prices or increased taxation.
But these outbursts, while valid, tend to overlook a more fundamental and deeply rooted issue: Pakistan’s institutions are not designed to deliver inclusive and equitable growth. Rather, they serve to entrench the privileges of narrow, powerful elite.
As Nobel Prize-winning economists Daron Acemoglu and James Robinson emphasize in their seminal work Why Nations Fail, when political power is concentrated in the hands of the elite, economic systems are inevitably rigged to protect their interests. This form of “elite capture” means that public institutions and national resources are systematically diverted to benefit the few, while the majority is left behind.
Acemoglu and Robinson’s blunt reminder— “It’s the politics, stupid”—rings especially true for Pakistan. They illustrate how, in countries like North Korea, the ruling elite retains absolute political control and manipulates the economy to preserve its dominance. Sadly, Pakistan reflects a similar pattern. A small, interconnected elite—comprising feudal aristocrats, real estate tycoons, commercial importers and elements of the establishment—has cemented its grip over political institutions, enabling it to write the rules of the economic game in its favor.
The fiscal system is a prime example of this capture. Who gets taxed, who gets exemptions and how public money is spent—these decisions are made not in the public interest but to protect elite privileges. The numbers are revealing: in fiscal year 2024–25, tax exemptions, concessions, reduced rates, zero-rating and special treatments for various business sectors and powerful groups will cost the government Rs 5,840.2 billion, up from Rs 3,879.2 billion in 2023–24—an increase of nearly Rs 1,961 billion in just one year. To put this in perspective: the combined development and non-development budgets of Khyber Pakhtunkhwa (Rs 2,119 billion) and Baluchistan (Rs 1,028 billion) for 2025–26 total Rs 3,147 billion. This means the annual tax exemptions alone could fund the entire provincial budgets of KP and Baluchistan for nearly two consecutive years. This stark comparison reveals just how enormous the scale of elite capture has become.
Nowhere is this injustice more evident than in Baluchistan, Pakistan’s most underdeveloped province in terms of health, education and infrastructure. The province’s total budget for 2025–26 is Rs 1,028 billion, a mere 18% of the total tax exemptions granted in 2024–25. The development allocation for Baluchistan is Rs 336.58 billion—only 6% of total exemptions. Education and health, vital sectors for any province’s long-term growth, are allocated Rs 145 billion and Rs 87 billion, respectively—just 2.5% and 1.5% of the total tax concessions given to the elite.
While the elite enjoy exemptions, the burden of taxation increasingly falls on the salaried middle class. In 2023–24, salaried individuals became the third-largest contributor to Pakistan’s tax revenue, paying a staggering Rs 555 billion in income tax—Rs 188 billion more than the previous year and double the combined taxes paid by the retail and real estate sectors. To put it bluntly: the salaried class paid taxes equivalent to nearly 10% of the total exemptions granted to the elite. The result? Rising costs of living, shrinking disposable incomes and the flight of talent. In the last year alone, over one million people left Pakistan in search of better opportunities abroad.
This capture is not limited to tax policy. It spans nearly every major sector—sugar, cement, electricity, real estate, agriculture and beyond. In each, powerful actors manipulate policy and regulation to secure profits, prevent competition and consolidate control. The outcome is a stagnant economy, rising inequality and diminishing hope for upward mobility.
So, what can be done? The only path to meaningful change lies in politics. As Acemoglu and Robinson argue, economic reform is impossible without political reform. In Pakistan, where nearly 60% of the population is under the age of 30, the youth have the greatest stake in the country’s future—and therefore the strongest incentive to challenge the status quo. This generation cannot afford to remain on the sidelines. If the system is to change, it must begin with young people reclaiming politics from the entrenched elite. That means channeling frustration into action: voting organizing, mobilizing and demanding accountability. Only by transforming politics into a truly inclusive and representative space can we begin to reshape the economy. It will not happen overnight, but once political power reflects the will of the majority, economic reform will become not only possible—but inevitable.
—The writer is Associate Professor of Economics, Institute of Business Administration (IBA) Karachi
