Sound governance: the key to growth

EDITORIAL: The contrasting views of two key cabinet members at an event held recently have brought into focus a debate Pakistan cannot afford to get wrong: whether to prioritise growth or consolidate stability and structural reform.

Speaking at the Leaders in Islamabad Business Summit 2026, Privatisation Adviser Muhammad Ali argued that “unless we grow, we cannot improve governance”, while Finance Minister Muhammad Aurangzeb stressed the need to make macroeconomic stability permanent and stay the course on structural reforms.

The positions are not necessarily incompatible; the real question is what kind of growth Pakistan should pursue and whether the foundations to sustain it are in place.

There is a strong case for higher growth: an economy expanding barely faster than its population cannot generate sufficient jobs or meaningfully raise living standards.

But arguing that governance cannot improve without growth risks reducing governance to economic performance alone, when in fact, it encompasses far more: upholding merit, reducing corruption, dismantling entrenched privilege and entitlement, effective accountability, stronger institutions and an end to elite capture. These are among the conditions that determine whether growth is productive, equitable and sustainable.

This is why macroeconomic stability matters. It provides the space and discipline to undertake structural reforms fundamental to better governance. Reforming the tax regime, tackling the energy crisis, strengthening accountability, devolving power and resources to the grassroots, and removing incentives for rent-seeking and elite capture are not merely economic measures, but essential elements of good governance.

The finance minister’s five priorities outlined at the summit are therefore significant: making stability permanent; pursuing sustainable, responsible growth driven by investment, productivity and exports; continuing structural reforms; shifting from aid to trade and investment; and positioning Pakistan to participate more effectively in the New Economy.

The danger lies in Pakistan once again mistaking the restored stability for permission to pursue reckless growth.

History shows that after painful adjustment restores a measure of macroeconomic balance; governments become overconfident, loosen fiscal and monetary reins, and chase faster growth through consumption, public spending and external borrowing. The initial gains are soon followed by widening current account deficits, mounting debt and financing pressures, dwindling reserves and eventually another IMF programme.

The rulers, then, must demonstrate the wisdom not to repeat this playbook. Pakistan has paid too high a price for successive bouts of premature, consumption-driven expansion to embark on another one simply because the latest crisis has passed. Growth that recreates the conditions for the next balance-of-payments crisis is simply not a solution.

This does not mean that Pakistan can remain in stabilisation mode indefinitely. Growth eventually must be pursued, but it must be the right kind. Both officials, in fact, appear to agree on an important part of this proposition: Pakistan’s old consumption-led model must give way to growth based on investment, productivity and exports. That requires confronting some deeply embedded weaknesses.

Pakistani industry, for instance, remains largely geared towards import substitution, while exports have too often reflected what the domestic economy happens to produce rather than what international markets demand. A genuinely export-oriented economy requires businesses to produce competitively for global markets, not simply export domestic surpluses abroad.

Growth, therefore, should be the destination, but structural reform must determine the route. Pakistan must ensure that the stability it has achieved is used to build the institutional and economic foundations for sustainable growth and better governance.

The government now has an opportunity to break with the old cycle. It would be reckless to squander it by once again chasing consumption-led growth before putting in place the reforms, institutions and governance structures needed to sustain it.

The lesson of Pakistan’s repeated boom-and-bust cycles should finally be clear: growth without sound governance and structural foundations only sets the stage for the next crisis.

Copyright Business Recorder, 2026