Pakistan does not suffer from a shortage of reform ideas. Rather, it has an abundance of excellent policy documents by the Planning Commission, the PIDE, the World Bank, the IMF, the SBP and the academia highlighting the specific reforms needed to overcome structural problems of the economy and their technical feasibility. It suffers from an inability to implement them. For years, policymakers have announced policy initiatives, unveiled reform agendas, and promised structural change.
Yet the outcome remains stubbornly familiar: low growth, weak exports, and recurring reliance on external financing. The real question, therefore, is not what needs to be done but why reforms, despite being well understood, fail to take hold.
Consider the export sector. Successive governments have unveiled strategic trade policy frameworks, identified national priority sectors for export development and implemented institutional reforms such as the Pakistan Single Window (PSW) and WeBOC, and rolled out incentives to exporters, namely Export Facilitation Scheme (EFS), Drawback of Local Taxes and Levies (DLTL), and concessionary financing schemes. Yet exports have shown little sustained progress. They rise briefly, only to fall back again. Meanwhile, comparable economies have moved up the value chain and diversified their export base. The issue is not effort alone, but consistency and direction.
Taxation, too, depicts a familiar account. Pakistan’s tax-to-GDP ratio, at 10.3 percent, shows a significant improvement from its decade long average of 8.7 percent; nonetheless, it remains far below the 18 percent threshold deemed essential for sustainable development. The tax administration has hitherto failed to effectively broaden the base, curb systemic tax evasion, or integrate the informal sector (particularly retail, real estate, services and large-scale agriculture) into effective tax net. Even as the burden falls disproportionately on documented sectors, policy initiatives to widen the base are often announced with great fanfare, only to be diluted or delayed in implementation.
And nowhere this failure of policy reforms is more apparent than the energy sector, which depicts a chronic dependency on subsidies. Owing to the political implications from the price adjustments, price adjustments are frequently deferred, which leads to the build-up of circular debt. Reforms are introduced when pressures mount, particularly under external programmes, but are rarely sustained once the immediate crisis passes. The result is a cycle of temporary correction followed by renewed imbalance.
Seen together, these are not isolated policy failures. They point to a deeper problem: how incentives are structured. Policies tend to favour flexibility over predictability, and discretion over rules-based governance. Export incentives tend to reward volume rather than value addition, tax policy accommodates exemptions rather than broadening the base, and regulatory frameworks allow reversals rather than ensuring continuity. What appears pragmatic in the short-term often proves costly in the long run.
This system persists because it serves vested interests. Policymakers retain room to manoeuvre, segments of the business community benefit from preferential treatment, and administrative discretion creates opportunities that would not exist under rule-based governance. In such an environment, reform is acknowledged, even promised, but rarely pursued to its logical conclusion.
The burden, however, falls elsewhere. When economic pressures intensify, adjustment tends to come through higher indirect taxes, reduced subsidies, and constrained public spending. For most citizens, reform is not experienced as an opportunity, but as a sacrifice. At the same time, deeper distortions in the system remain largely untouched.
The costs of this arrangement are increasingly visible. They appear in recurrent macroeconomic pressures, fragile growth performance, and persistent fiscal constraints. But these costs are spread across society, while the benefits of the existing arrangement remain concentrated. This asymmetry contributes to the durability of the existing structure, even as its limitations become more apparent over time.
Ultimately, Pakistan’s reform challenge is less about knowledge and more about entrenched incentives and institutional constraints. The difficulty does not lie simply in the absence of a reform constituency, but in the structural barriers that limit its expansion. Those who benefit from the status quo have both the influence and the incentive to resist change.
Reform, then, is not resisted because it is poorly understood, but because it unsettles entrenched interests. Unless these underlying constraints are addressed through broader consensus and a sustained commitment to rules-based policymaking, Pakistan is likely to remain caught in a familiar pattern: managing crises rather than resolving underlying structural weaknesses.
Copyright Business Recorder, 2026
The writer is a Research Economist at the Pakistan Institute of Development Economics (PIDE). He can be reached at Email: [email protected]
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