Growth for the elite

Now that stabilization has been achieved growth is the overarching objective, the Prime Minister and the Finance Minister have repeatedly claimed. And growth of the large-scale manufacturing sector (LSM), as estimated by the Pakistan Bureau of Statistics (PBS), is cited as evidence that industrial output is on the rise.

Industry contributed 18.14 percent to Gross Domestic Product (GDP), agriculture 23.44 percent (though the bulk of this is from livestock — 62.45 percent — rather than from crops at 17.32 percent) and outpacing the two is the services sector — 8.42 percent with the largest contributor being retail and wholesale trade, reflecting consumption.

The quantum index of LSM for August 2026, base year 2015, registered a growth of 0.67percent when compared to August 2025; however, it declined by a whopping 4.96 percent when compared to July 2026.

Annual statistics for LSM as released in the Monthly Update and Outlook uploaded by the Finance Divisions are as follows: (i) 2021-22 growth was 11.7 percent, a surprise to the then government, due to the drawdown in inventories as consumption rose due to the easing of lockdown associated with COVID-19; (ii) 2022-23 growth was negative 10.3 percent.

The reason can be laid at the doorstep of the Pakistan Democratic Movement (PDM) that came to power in April 2022, and proceeded to keep the rupee-dollar parity fixed even when reserves were under 3 billion dollars, giving rise to multiple exchange rates that, in turn, led to a loss of 4 billion dollars in official remittance inflows.

And to compound its folly the then government extended a 110 billion-rupee subsidy to exporters at a time when 30 million Pakistanis were homeless due to the devastating floods – policies that led to a suspension of the then ongoing IMF programme; (iii) 2023- 2024 LSM growth plummeted to 0.9 percent which, given the extremely low base the year before, meant little; and (iv) in 2025-26 the growth rate was calculated at 4.98 percent – a rate that has been challenged by the textile sector, with the highest weightage of 18.16 percent, Pakistan’s largest export items, claiming high input costs have made them uncompetitive regionally, and citing more than a 150 factory/unit closures as evidence. Their claim is supported by the negative flow of credit to the private sector (LSM is the largest recipient of private sector credit) - from 1 July 2026 to 11 September 2026 the flow was negative 364.5 million rupees against negative 170 million rupees in the same period the year before.

Four observations are in order. First, the largest growth has been in automobiles, 32.45 percent July August 2026 compared to the same period last year. Cars are largely assembled in Pakistan with companies reliant on importing parts from their headquarters which implies that the 3.1 percent weightage given maybe a tad too high especially as it contributes to higher imports. Second, petroleum and products witnessed a rise of 15.48 percent with a weightage of 6.66 percent.

Pakistan is heavily reliant on importing petroleum and products and with the recent increase in international prices the rise may be due to a price rise rather than an output rise. Thirdly, garments with a 6.08 weightage rose by 16.69 percent – a factor that again maybe reflective of a price rise as factory closures continue due to a rise in input costs as a consequence of the ongoing IMF programme. Sugar, with ownership concentrated amongst the political elite, contributes 3.43 percent to LSM.

And finally, growth has been linked to a drawdown in inventories as was clearly the case in 2021-22 with purchases deferred till such a time as the market stabilizes or when purchases cannot be postponed further; for example, increasing mechanical failure of a car.

A look at who operates in these four growth sectors indicates that they are a part of the elite and exert considerable influence on policymakers to ensure monetary and fiscal incentives and tariff subsidies in the name of fuelling output and thereby exports and growth though the IMF’s conclusion of their demands has been damning in the report dated 10 October 2024: “The state’s support of businesses through subsidies, favourable taxation arrangements, protection and governmental price setting has undermined the development of a dynamic and outward oriented economy…. Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.”

Agriculture remains dependent on weather conditions and with Pakistan climate stressed growth has not met ambitious targets.

True that the rich landlords have a much higher than the national yield per hectare due to better access to capital, modern machinery, quality inputs and institutional finance yet to date collecting income tax from the rich landlords at the same rate as that levied on the salaried, their much poorer brethren, continues to be a struggle.

The IMF’s condition to legislate and then impose a farm tax on income of rich landlords, a provincial subject as per the constitution, has not yet been satisfactory.

The Fund’s assessment of 2024: “the tax system has been extensively used to provide non-transparent support through exemptions for privileged sectors like real estate, agriculture, manufacturing, and energy, as well as, through the proliferation of Special Economic Zones (SEZs).

The government’s intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors.” Sadly, the incumbent government clearly continues to focus on incentives to boost exports, and a committee tasked to review export of essential commodities which met under the chairmanship of Ishaq Dar directed all to address constraints and facilitate export of surplus commodities – an exhortation that would not encourage producing items for exports rather than merely exporting the surplus as at present and also continue to logjam moving into production of higher adding export products that currently do not qualify as LSM.

The Fund is stipulating that these activities must stop and if implemented could increase fiscal space considerably allowing time to the Federal Board of Revenue to initiate reforms designed to reduce reliance on indirect taxes whose incidence on the poor is greater than on the rich to direct taxes, or ability to pay. And, additionally, the Fund argued that “Despite the significant (and persistent) dispersion in productivity across sectors, especially between the agricultural and non-agricultural sectors, resources did not move from relatively less-to-more productive areas. In particular, Pakistan has seen one of the smallest declines in the share of agricultural employment amongst EMDCs since 1990. Moreover, low investment together with protectionism and weak competition, harmed innovation in tradables production (resulting in declining economic complexity) and preventing any potential transition to more complex goods which are “related” to those Pakistan currently produces.”

In effect, wholesale and retail trade remains the major source of growth in the country and one disturbing aspect is the aarthi middleman who purchases perishables from subsistence/small farmers and adjusts the amount payable with the interest on loans secured by the farmer ion the past thereby making windfall profits and middlemen operating in other manufactured consumer items (domestically, imported and smuggled) who operate similarly.

To conclude, given that the beneficiaries of growth are the elite in the three major sectors, a claim that is strengthened by the fact that 44.7 percent of Pakistanis now live below the poverty line as per the World Bank, it is time for the government to look at the beneficiaries of growth and implement inclusive policies in letter and spirit.

Copyright Business Recorder, 2026