Without a commitment to continuing structural reforms, Pakistan’s improving economic indicators are unlikely to yield sustainable growth.
A State of the Economy report released by the Finance Division says Pakistan’s economy has shown commendable resilience in the first half of FY2025. It claims GDP growth stands at 2.5%, inflation has significantly declined from 28.8% to 7.2%, and the current account balance posted a surplus of $1.21 billion. Improving remittance inflows, a stable exchange rate, and targeted policy measures have bolstered this welcome recovery.
Unfortunately, this isn’t a unique occurrence in Pakistan’s history. Past economic recoveries have often proved fragile and short-lived, collapsing due to policy reversals, lack of continuity in reforms, and an overreliance on short-term fixes rather than structural transformation.
The growth surge of the early 2000s under then-President Pervez Musharraf saw the economy expand at an impressive 7% annually, fueled by privatization, deregulation, and foreign investment. By the late 2000s, these structural reforms were abandoned due to political instability and populist economic policies, pushing the country back into macroeconomic distress, with high fiscal deficits and external imbalances.
Another brief period of high growth emerged from 2013-18, primarily driven by the China-Pakistan Economic Corridor (CPEC) and an influx of foreign loans. This, too, collapsed due to weak institutional reforms, an unsustainable import-driven expansion, and growing fiscal indiscipline. In 2019, the growing balance of payments crisis forced the country back into an International Monetary Fund (IMF) program.
The key takeaway: Pakistan’s boom and bust cycles will persist without deep-seated structural reforms. The industrial sector also remains sluggish, agricultural sustainability is uncertain, and external debt remains high. Moreover, persistent issues such as low tax collection, energy sector inefficiencies, and a failure to facilitate ease of doing business continue to hinder long-term progress.
To break this cycle, Pakistan must resist the temptation of policy reversals and short-term populism. The recently announced 5-Year Economic Transformation Plan, Uraan Pakistan, offers a chance to institutionalize reforms aimed at self-reliance and inclusivity. Key among its aims is a focus on boosting exports and improving the country’s long-pending energy and infrastructure woes. Additionally, it calls for broadening the tax base and rightsizing the bloated federal government to reduce the burden on the national exchequer. Achieving its goals, however, will require sustained fiscal discipline, enhanced productivity, and a more competitive investment environment.
Pakistan has witnessed short-term economic improvements before, only to see them reversed before taking hold. Only through policy continuity and resistance to short-term political pressures can Pakistan achieve the long-term sustainable growth and financial stability necessary for economic advancement.