PAKISTAN has spent decades discussing economic growth without addressing the structural weaknesses that repeatedly pull the economy back into crisis. Whenever growth begins to accelerate, imports rise, the current account deteriorates, foreign exchange reserves come under pressure and the country eventually returns to the IMF. Pakistan now needs to break this cycle. But the uncomfortable truth is that raising GDP substantially will require decisions that are politically difficult, socially sensitive and strongly opposed by powerful vested interests.
The Pakistan Economic Survey 2025-26 provisionally estimates real GDP growth at 3.7%, compared with 3.18% in FY2025, while the IMF projects growth of about 3.6% for FY2026. Three to four per cent growth is simply inadequate for a country with a rapidly growing population, widespread poverty, unemployment and enormous development requirements. The question, therefore, is not whether Pakistan needs higher growth.
The political cost of reform: Almost every meaningful economic reform carries a political cost. Taxing agricultural income creates resistance. Reforming energy prices creates public anger. Closing loss-making enterprises creates opposition. Privatizing inefficient institutions generates controversy. Reducing subsidies invites protests. Documentation threatens the informal economy, while stronger accountability threatens vested interests.
This is precisely why Pakistan has repeatedly postponed structural reform. The problem is therefore not merely economic incompetence. It is the inability or unwillingness of political leadership to confront organized vested interests. Business mafias, powerful land interests, smuggling networks, politically connected enterprises and protected economic groups cannot be allowed to dictate national economic policy. Confronting them requires political courage, competence and the ability to take difficult decisions while remaining committed to them beyond the next election. There is no painless route to high growth. End the unequal tax burden: No serious economic transformation is possible without a genuine tax revolution. Pakistan’s tax-to-GDP ratio has improved, but remains low compared with the requirements of a modern state and many regional economies. Agriculture remains one of the country’s largest under-taxed sectors.
Agricultural income, large commercial property holdings, wholesale and retail businesses, high-income professionals and other sectors with substantial tax capacity must gradually enter an effective tax net. The objective should not be to squeeze the already documented salaried taxpayer further; it should be to discover and document the undocumented economy. The poor cannot repeatedly be asked to pay more through electricity bills, fuel prices and consumption taxes while wealth, property and productive assets remain insufficiently taxed.
At the same time, taxation should not become a punishment for investment. A businessman who expands a factory, creates employment and earns foreign exchange should be encouraged rather than treated in the same manner as speculative activity. Pakistan needs to move gradually from excessive dependence on indirect taxation towards a broader, fairer and more progressive direct-tax system.
Pakistan cannot borrow its way to prosperity. Declining exports as a share of GDP have left the economy dependent on borrowing and remittance-supported consumption. The country must diversify beyond traditional textile exports by prioritizing processed agricultural products, pharmaceuticals, engineering goods, minerals, information technology, business-process services, software and other knowledge-based exports. Every ministry should be asked what it is doing to increase exports. Pakistan must develop agricultural value chains that produce more from less land and water while generating greater value.
Pakistan’s energy sector remains a major obstacle to competitiveness. Expensive electricity, transmission and distribution losses, circular debt and poorly structured contracts burden households, industry and the economy. Energy reform must therefore address generation costs, losses, theft, governance and contractual arrangements, not simply raise electricity prices. Similarly, loss-making state-owned enterprises cannot continue consuming scarce public resources. Pakistan needs a transparent policy of restructuring, privatization or closure where appropriate. Privatization must not mean selling public assets cheaply to favourites. It requires transparent competition, independent valuation, public disclosure and effective post-privatization regulation to protect the public interest.
The state should concentrate on education, health, security, justice, regulation and infrastructure rather than operating commercial enterprises that the private sector can manage more efficiently. Turn the young population into an economic asset Pakistan’s young population is often presented as a burden. It can instead become an enormous economic advantage if young people are educated, healthy and employed. The country needs a massive expansion of technical and vocational education, digital skills, apprenticeships and women’s economic participation. Millions of young people enter the labour market every year.
Document the informal economy through technology: The informal economy cannot be eliminated simply by sending tax officials into markets. Harassment will create resistance rather than documentation. Pakistan needs integrated digital economic identities for businesses, electronic invoicing, banking records and secure data-sharing among relevant government institutions. Technology should make tax compliance easier and tax evasion increasingly difficult. Documentation should be based on incentives, transparency and technology rather than fear.
Pakistan does not need a bigger government but a more competent and accountable one. Federal and provincial governments should adopt a ten-year national economic compact protected from political disruption, with measurable annual targets for exports, investment, tax collection, energy losses, productivity, employment and human development. Provinces must assume greater responsibility for raising revenues and delivering education, health, agriculture and local services. Local governments should receive predictable resources and genuine administrative authority. The World Bank and IMF have stressed deeper structural reforms, stronger revenue mobilization and better spending efficiency. But implementing these reforms remains the responsibility of Pakistan’s political leadership.
Pakistan does not suffer from a shortage of economic diagnoses but from a shortage of political courage to implement them. Sustainable economic policies require continuity, institutional certainty and an environment where investors can plan long term. Political disruption, policy reversals and confrontation undermine governance, investment and confidence. If leadership continues to prioritize political convenience over economic necessity, Pakistan may remain trapped at 3–4% growth. But choosing courage over convenience, productivity over patronage, exports over excessive consumption, merit over mafias and continuity over short-term interests can help Pakistan escape its recurring economic crises. The challenge is not knowing what to do, but finding the political will to do it.
—The writer is Senior Retd bureaucrat, based in Lahore.
