Looking back just a few years, Pakistan’s economic team was universally aligned on export-led growth. The framework made perfect sense: simplified taxation, zero-rating systems such as the Export Finance Scheme, and concessional bank financing to make our exports globally competitive.

Yet, regular policy reversals increased exporters’ effective tax burden from a competitive 15–25 per cent to an astronomical 55pc, while export finance costs rose sharply. The easing of a little part of these policy excesses in the present budget is an admission of the wrong policy which made our exports, the acclaimed growth driver, suffer.

The only true consistency we have demonstrated has been a total reliance on borrowed wisdom.

In the 1990s, when we were pushed to adopt so-called “economic reforms,” Pakistan’s per capita income was significantly higher than that of all regional peers, including India, Bangladesh, China, and Vietnam. Yet we were told our economy was underperforming and required deep structural overhauls dictated by the prescriptions of international donors.

The only true consistency we have demonstrated has been a total reliance on imported ideas

Today, after a continuous cycle of International Monetary Fund and World Bank reform programmes, our per capita income has dropped to one-eighth of China’s (which was 55pc lower than ours in 1990), one-third of Vietnam’s (from being 441pc higher in 1990), 40pc less than India’s (from being 46pc higher), and 35pc less than Bangladesh’s (after being 86pc higher prior to the 1990 reforms).

How did Pakistan manage to remain on a downward spiral while its peers followed consistent upward trajectories? We treated donor prescriptions as unalterable dogma without any indigenous customisation, whereas our regional peers formulated their own policies, rejecting external advice which didn’t suit them. Just two examples, out of several: power policy and trade policy, should prove the point.

Before its unbundling during the power sector reforms of the 1990s, the Water and Power Development Authority (Wapda) was globally recognised as an exceptionally capable, integrated public utility. It possessed world-class in-house expertise in dam engineering, hydrology, power generation, transmission planning, and project management, delivering the massive Indus Basin Project — the Tarbela and Mangla dams — and a vast network of barrages and link canals.

Up until the 1990s, Pakistan produced some of the cheapest, cleanest electricity in the region — two-thirds of which was hydel-generated — while achieving one of the most rapid rural electrification expansions in South Asia.

Donor-driven reforms fractured this mega-institution into multiple distribution companies, generation companies, and the National Transmission and Despatch Company, introducing severe operational inefficiencies and governance challenges. Stripped of its integrated financial capacity, Wapda couldn’t launch new mega-reservoirs for two decades, resulting in our current water-scarcity crisis.

Regular policy reversals increased exporters’ effective tax burden from a competitive 15–25 per cent to an astronomical 55pc, while export finance costs rose sharply

Concurrently, independent power producers were brought in on expensive furnace oil contracts in the 1990s, when the rest of the world transitioned toward cheaper alternatives. We traded a world-class public utility and low-cost generation for a mounting circular debt and an unsustainable energy cost crisis — all in the name of donor-prescribed reforms.

During the 1980s, Pakistan enjoyed a robust industrial growth rate of 8–9pc, with industry contributing 26pc to GDP — a ratio comparable to India’s and slightly ahead of Vietnam’s and Bangladesh’s. Walking blindly into rapid, unilateral tariff reductions and trade liberalisation under external advice, we triggered premature deindustrialisation. Industrial growth slid to 3.6pc in 2000, 2.5pc in 2010, contracted to -2.6pc in 2020, and currently hovers near 1pc.

In 1990, Pakistan’s exports were 350pc higher than Bangladesh’s and 250pc higher than Vietnam’s. Today, our exports are 44pc less than Bangladesh’s, a mere 8pc of Vietnam’s, and less than 1pc of China’s. Our trade deficit went up from $1.35 bn (16pc of our exports) in 2000 to $26.4bn (82pc of our exports) in 2025. These so-called trade reforms made our economy’s external sector vulnerable, making us run to the International Monetary Fund (IMF) regularly every few years.

Recently, after a brief industrial recovery of 8.2pc in 2021 and 6.2pc in 2022 — achieved primarily through the balanced National Tariff Policy (2019-2024) we have once again reverted to unilateral tariff liberalisation at a time when global markets are becoming overtly protectionist.

This policy swing has already cost the country an estimated $5 billion through May this year due to import surges, including $3bn spent on luxury vehicles alone, outstripping the current year’s IMF loan disbursements. Any chances of building strong foreign exchange reserves in the wake of falling oil prices seem to have been successfully undermined.

While China, Vietnam, and others transitioned to liberalisation only after building a sound industrial and technological base, Pakistan was made to leapfrog into a liberalised market framework without any preparation. We squandered three decades while our peers overtook us by leaps and bounds.

This economic mismanagement directly correlates with our decline in the Human Development Index (HDI). In 1990, Pakistan’s human development indicators were ahead of Bangladesh and broadly comparable to India.

By 2025, Pakistan had descended to 168th place on the Human Development Index, while Vietnam rose to 93rd, and both India and Bangladesh reached 130th. Unsurprisingly, Pakistan’s labour productivity has fallen from being among the strongest in the region in the 1990s to among the weakest now.

This decline was further aggravated by the post-18th Amendment governance structure, in which executive power was centralised at the provincial level, allowing it to deprive local governments of their critical mandates over education and health.

Despite its structural shortcomings, Pakistan possesses immense economic potential, but unlocking it requires an indigenous economic vision, a coherent and consistent policy framework free from elite capture or donors’ dictation, and an unyielding commitment to institutional discipline and transparency. It is time for our leadership to rise above their political interests, move past borrowed strategies and chart a sovereign path that serves our nation’s economic and social objectives.

The writer is a former federal secretary, caretaker provincial minister and currently chairman, Policy Research and Advisory Council.

This is the second article of a two-part series.

Published in Dawn, The Business and Finance Weekly, July 6th, 2026