PAKISTAN holds considerable economic promise, yet much of it remains unrealised. In many socioeconomic indicators, the nation lags its neighbours. One of the main factors behind this is an unpredictable and complex policy landscape, which continuously weakens Pakistan’s ability to compete globally and spend adequately on human capital development. This makes it difficult to achieve growth that is not only competitive but also inclusive and sustainable.

Pakistan has experienced periods of economic progress but has struggled to maintain long-term momentum. Deep-rooted structural hurdles and high costs of doing business continue to limit development. Many colonial-era regulations remain in place and constrain meaningful advancement. The devolution of authority from the federal level to the provinces was intended to strengthen local governance, which has not been achieved. Ministries often operate in silos, with little coordination. For instance, fiscal authorities push for higher tax collection from the same sectors targeted for investment, export growth and job creation by other agencies.

Facing repeated economic difficulties, Pakistan has often resorted to short-term measures rather than tackling fundamental issues. It has participated in 24 IMF programmes and repeatedly relied on support from allies, using its geopolitical position — an advantage that is now less potent. Planning remains focused on immediate solutions rather than developing lasting strategies. For example, increasing power generation with high guaranteed returns was prioritised over improving demand and efficiency in transmission and distribution.

Economic progress in Pakistan has rarely benefited the broader population, remaining concentrated within a small elite. Protectionist strategies and import substitution policies, implemented through tariffs and trade barriers, have preserved existing interests while stifling export growth and limiting consumer access. For years, rural parliamentary elites have enjoyed tax exemptions, and efforts to broaden the tax base — especially in sectors like retail, transport, and real estate — have mostly fallen short. This narrow tax base, coupled with high government spending and persistent losses, leaves little room for investment in human capital, resulting in low productivity across most sectors.

Pakistan must remove barriers built into its economic systems.

To achieve lasting economic development, Pakistan must methodically remove barriers built into its economic systems and business climate. Comprehensive reforms are necessary, including right-sizing, regulatory guillotine, transparency through digitisation and increased professionalism and competition. The economy must move beyond reliance on patronage, subsidies, guaranteed returns, and indefinite tariff protection. Family businesses should adopt professional management, multinational companies should focus on exports, and all need to diversify products and markets.

Can Pakistan’s private sector lead transformation while facing high costs, limited industrial credit, bureaucratic complexity and heavy taxation? How realistic is it to pursue global competitiveness in industries such as petrochemicals, automotive and steel, given the lack of scale and upstream capacity? Pakistan needs an industrial policy that channels investment into areas where it has a comparative advantage. These sectors should draw on Pakistan’s natural resources — land, water and people. Investors must also look beyond traditional industries.

The recent increase in remittances from overseas Pakistanis highlights the economy’s inability to create enough produc-tive jobs at home. While remittan­-c­­es help in the short term, they detract from the need to develop exports and red­uce reliance on imports in essential sectors like food. FDI in Pa­­kistan mainly targets fast-moving consumer goods, which does little to boost exports and results in substantial outflows of dividends and fees. The focus should be on attracting both FDI and local investment to expand exports and bring new skills and technology.

Pakistan’s ongoing fiscal and external deficits are the result of living beyond its means — exporting less than it needs to import, spending more than it raises in taxes. These challenges stem from a deep trust deficit among stakeholders. Taxpayers and tax collectors do not trust each other; bureaucrats see businesses as seeking unfair rents; and policy uncertainty is common. Sovereign guarantees are ignored, wealth creation is discouraged, and policy approaches to trade, fiscal matters and investment are often misaligned. Feudal landlords and the informal sector avoid taxes, leaving salaried workers to bear most of the burden. Restoring trust is crucial to ensuring long-term economic progress.

The writeris former CEO of the Pakistan Business Council.

Published in Dawn, August 8th, 2025