PAKISTAN’S economic debate is trapped in a distracting quarrel — whether banks lend too much to government and too little to enterprise. Allocation matters, but it is not the binding constraint. On the State Bank’s consolidated estimates, with the share of development spending shrinking, a rupee of government spending now multiplies about 0.71 in output on average while a rupee of private investment returns 1.2 to 1.3. The private rupee works nearly twice as hard yet, strip out productivity — ie, the efficiency with which inputs become output — and even that collapses towards 1.0. Adjusted for our stalled productivity, no rupee in Pakistan truly compounds. We accumulate without amplifying.

The distinction is decisive. A rupee invested where productivity is rising earns more each year as workers learn and firms innovate; a rupee in a stagnant system merely buys more of the same. Pakistan’s productivity sits near 0.28 on comparable estimates, against India’s 0.48 and Sri Lanka’s 0.42, and the export scoreboard confirms it: Vietnam now ships over $400 billion in merchandise, more than 10 times ours, and Bangladesh’s garments alone exceed our total exports. These economies did not merely mobilise capital; they made it productive. That must be our organising principle — every reform tested against the question of whether it raises output per worker, per acre, per unit of energy, per rupee of credit. Against this backdrop, the following reforms are suggested:

First, we must export discipline. A home market of 250 million with weak purchasing power cannot generate a compounding return, but tradables can. Pakistan’s exports are stuck near 10 per cent of GDP, while those of Vietnam approach 90pc, the difference being a relentless focus on global value chains, industrial parks and fast customs. The lesson is to narrow ruthlessly to tradables and a competitive offering of goods and services, with reliable energy for exporters and incentives paid against performance — in other words, foreign exchange actually earned.

Second, skills are infrastructure. Road or rail infrastructure without investing in skilled workers is mere concrete, multiplying the 0.6 multiplier of inert spending rather than the 1.5 return when human capital rides on it. Barely a tenth of Pakistan’s workforce holds a formal qualification, against roughly 26pc in Vietnam, which based its manufacturing surge on enterprise-designed technical training. The answer lies in a national skills compact: training designed by employers, part-funded by the state and measured by placement and wage gains. It would feature export-relevant centres in every district, funded via structures such as the Pakistan Skill Impact Bond.

No rupee in Pakistan truly compounds. We accumulate without amplifying.

Third, technology must reach the firm. Most SMEs do not need cutting-edge innovation; basic digital tools can enhance their productivity. India’s digital public infrastructure now clears over 18bn real-time payments a month, formalising millions of small firms; Germany’s Mittelstand shows the same in reverse, with deep technology inside small companies. Punjab proves the model at home: Asaan Karobar puts interest-free, bank-financed credit on a card for traders who never qualified for a loan, while Apni Chhat Apna Ghar runs an end-to-end digital, interest-free mortgage-financed housing scheme with over 170,000 mortgages approved and more than 100,000 homes delivered.

Fourth, agriculture should be rebuilt around yield, not acreage. Our wheat yield, almost three tonnes a hectare, trails China’s at 5.8 and Egypt’s at 6.5, as our inputs are piled on without efficiency. India’s white revolution, built on cooperatives and cold chains, made that country the world’s largest milk producer. Punjab’s Kissan and Livestock Cards have already moved tens of billions of rupees of bank-financed inputs to farmers on a thin public guarantee — the rail on which precision inputs target productive output.

Fifth, finance must reward productivity over collateral. Banks prefer government paper and asset-backed lending because the economy is undocumented and enforcement weak, which is why sovereign exposure exceeds 60pc of assets, while private credit languishes at 13pc to 15pc of GDP, against nearly 50pc in India and over 100pc in Vietnam.

The remedy is information, not moral or regulatory pressures: digital tax, utility and supply-chain data turned into credit histories, alongside cash-flow lending, movable collateral registries and first-loss guarantees that move capital to bankable SMEs, farmers and women entrepreneurs. The Financial Data Exchange of the Pakistan Digital Authority’s WASL project could act as a bridge.

Sixth, incentives must turn away from rent. Real estate and undocumented commerce absorb the bulk of national savings while contributing a fraction to tax; this accumulated wealth keeps the multiplier below one, even as documented enterprise is taxed and idle wealth escapes. Vietnam and Malaysia channelled savings into export manufacturing, not land speculation; our equivalent is predictable taxation for formal firms, faster refunds for exporters and firmer taxation of unproductive rents.

Pakistan lacks neither capital nor talent; it lacks a system that forces capital to grow more intelligent over time and institutions that measure outcomes, not just expenditure.

The real reform is not to move the rupee from one pocket to another but to make every rupee carry more technology, skill, discipline and export capability. The door of private-sector credit opens the moment bankable propositions exist, but productivity is the key, and bankability is its reward. That is how nations compound, and that is what Pakistan must now learn to do.

The writer is senior banker and chairman of the Pakistan Banks Association.

Published in Dawn, July 8th, 2026