PAKISTAN is passing through a period of subdued growth shaped by stringent policies under the ongoing IMF programme. The economy has slowed to 2.7 per cent growth, while poverty affects 44.7pc of the population and unemployment stands at 8pc. After a brief decline, inflation is rising again, with the CPI at 6.2pc in October — more than double the level two months earlier.

Despite controls on foreign exchange, imports grew by 13.9pc between July and September 2025, while exports fell by 3.8pc, widening the trade deficit by 33.8pc. The exit of several multinationals — though not all due to local factors — has dented investor confidence. More worryingly, existing investors remain hesitant to expand beyond sectors cushioned by state patronage. Over 70pc of profits of the KSE-100 during the first nine months of 2025 came from such protected sectors and state-owned enterprises. Of the 17 most profitable sectors, only five were export-oriented, revealing a narrow base.

Pakistan’s export share of GDP has fallen from 16pc in the 1990s to just 10.4pc in FY2024, and some have stopped exporting value-added textiles. This erosion of competitiveness underscores the need for deeper structural reform rather than temporary relief measures.

While the government provides support to key industries, dissatisfaction in the business community persists. In response, the prime minister has established task forces to address investor concerns. Yet policy space remains limited by IMF conditionalities. Measures such as tax or energy tariff cuts could lift activity temporarily but risk widening fiscal and external deficits, fuelling inflation, and weakening the rupee. Premature easing would once again trigger Pakistan’s familiar boom-bust cycle.

Reform must also target structural bottlenecks.

Pakistan’s tax rates are among the highest and the tax regime the most distortionary in Asia, especially for the salaried class. Without a shift from tax collection to wealth creation, new investment will remain elusive.

Reforms reportedly under consideration could amount to Rs1.1 trillion in tax cuts. Proposals include lowering the corporate tax rate from 29pc to 25pc, reducing maximum individual and AOP rates from between 38pc and 49pc, to 25pc, abolishing the super tax, eliminating taxes on inter-corporate dividends, and cutting the sales tax from 18pc to 15pc. Phased over the next few years, these measures could improve Pakistan’s investment climate — as would removal of the capital value tax, which has pushed local capital abroad.

Business leaders made two distinct sets of requests. Exporters sought a realistic exchange rate, duty-free imports under the Export Facilitation Scheme, and continuation of captive power generation where grid supply is unreliable. These are essential to restore competitiveness.

By contrast, import-substituting industries want protection maintained, citing high energy and operational costs. Conceptually, protection should follow comparative advantage, not lobbying strength. However, the government could adopt a phased approach: prioritising tariff reductions for sectors that supply inputs to exporters, while linking tariff cuts in non-export sectors to efficiency gains and lower costs. Still, this approach risks perpetuating an elite bias, benefiting protected industries at the expense of millions of consumers who face higher prices and fewer choices. Pakistan’s weak anti-dumping regime also needs strengthening, especially as shifting global trade may divert surplus goods to Pakistan.

Reassessing Pak­istan’s investment climate — amid both investor exits and renewed foreign interest, including from Saudi Arabia — is a positive step. Yet improving tax­es, tariffs, or ene­r­­gy costs alone will not be enough. Reform must also target structural bottlenecks: simplifying regulations, creating special economic and export zones with affordable utilities, improving access to long-term capital, upgrading ports, roads, and logistics, protecting intellectual property, and investing in testing laboratories. Pakistan also needs to renegotiate trade agreements and facilitate profit remittances to reassure investors.

The focus should shift from market-seeking to investment that strengthens the current account. Sectors such as agriculture, tourism, mining, mineral processing, and exportable services deserve priority. Ensuring food security before exporting commodities is equally important. Policymakers should also desist from selling assets to foreign investors that yield no foreign currency revenue and lead to short payback periods due to Pakistan’s risk profile.

Our challenge is not choosing between stabilisation and growth. It is making stability pro-growth.

The writer is the former CEO of Unilever Pakistan and the Pakistan Business Council.

Published in Dawn, November 22nd, 2025