Once again, citizens are expected to believe that Pakistan suffers from a shortage of revenue. The official narrative suggests that fiscal stability requires higher taxation, stricter enforcement and continued sacrifices by already overtaxed segments of society but facts tell an entirely different story.

For nearly three decades, articles in these pages and elsewhere have highlighted the phenomenon of “foregone taxes in trillions”. Shockingly, the issue attracted little policy attention. Of late, official reports of the Federal Board of Revenue (FBR), Economic Surveys of Pakistan and even studies by the Pakistan Institute of Development Economics (PIDE) confirm that concerns were neither exaggerated nor misplaced.

Pakistan’s fiscal deficit is not merely the result of inadequate taxation. It is substantially a consequence of trillions of rupees voluntarily surrendered through tax expenditures. The following official figures, extracted from annual Economic Surveys and FBR’s website, illustrate the magnitude of the issue:

===========================================
Table: Tax Expenditure (2010-11 to 2024-25)
===========================================
Fiscal Year    Tax Expenditure (Rs billion)
===========================================
2010-11                               150.3
2011-12                               185.5
2012-13                               239.5
2013-14                               477.1
2014-15                               415.8
2015-16                               394.6
2016-17                               415.8
2017-18                               541.0
2018-19                               972.4
2019-20                                1150
2020-21                              1314.3
2021-22                   1482.3 GST on POL
                       waived in March 2022
2022-23         2239.6 Excluding GST on POL
2023-24         3879.2 Excluding GST on POL
2024-25         2434.7 Excluding GST on POL
===========================================

The Table exposes a startling reality. Federal tax expenditure increased almost sixteen-fold between FY2010-11 and FY2024-25. The latest figure of Rs. 2.435 trillion (not including forgone sales tax on petroleum products) exceeds the annual budgets of several provinces and is significantly larger than the revenue shortfalls repeatedly cited by the government to justify new taxation measures. Had even a portion of these concessions been rationalised, Pakistan’s fiscal deficit could have been substantially reduced and, in certain years, transformed into a surplus.

Tax expenditure represents revenue forgone through exemptions, concessions, exclusions, tax credits, preferential rates, special regimes and other departures from the normal tax structure. Economically, it is no different from direct budgetary spending. The only difference is that it escapes the scrutiny ordinarily applied to expenditure shown in the budget.

Every rupee of federal tax expenditure granted in divisible-pool taxes affects not only the federal government but also the provinces. The 1973 Constitution guarantees provinces a share in federal tax revenues through the National Finance Commission (NFC) Award.

When federal authorities forego trillions through exemptions and concessions, provinces are simultaneously deprived of resources for education, health, local government, infrastructure and social protection. This raises a fundamental question. By what constitutional logic should selected beneficiaries receive preferential tax treatment while provinces lose resources constitutionally intended for their citizens?

The debate on tax expenditure is not merely fiscal. It concerns the distribution of power, resources and opportunities within the federation itself. PIDE’s recent study on tax expenditures reaches an equally troubling conclusion. It notes the absence of rigorous cost-benefit analysis, lack of meaningful evaluation and weak institutional scrutiny regarding the effectiveness of tax concessions.

Exemptions are frequently granted in the name of industrial development, investment promotion or social objectives, yet little evidence is produced to demonstrate whether these objectives are actually achieved. Many concessions survive long after their original rationale has disappeared. Others effectively operate as hidden subsidies benefiting narrow groups at public expense.

In this peculiar milieu, the first and most immediate reform should be a comprehensive review of all tax expenditures. Every concession should be subjected to annual scrutiny, accompanied by a sunset clause and automatic lapse unless justified by measurable economic and social benefits. Even a reduction of one-third of existing tax expenditures could generate hundreds of billions of rupees, substantially reducing dependence on regressive taxation and borrowing.

The second reform concerns one of Pakistan’s most protected sources of untaxed wealth: agricultural land rent.

For decades, public debate has conflated the interests of small farmers with those of large landowners. These are entirely different questions. Small cultivators facing climate shocks, rising input costs and declining productivity deserve protection and support. Large agricultural rentiers enjoying substantial income from ownership of land do not.

The original definition of “agricultural income” in the Income-tax Act, 1922 was rooted in agricultural operations and cultivation. It was never intended to create a blanket fiscal immunity for large landowners. The exemption recognised income arising from land used for agricultural purposes and from agricultural operations performed on that land. What emerged over subsequent decades was a political distortion whereby constitutional protection of agriculture gradually evolved into protection of agricultural rent and landed privilege.

The Finance Bill 2026 should distinguish between income from cultivation and income from ownership of agricultural land. Small cultivators deserve support, not taxation. Agricultural rent accruing to absentee owners and large landholders is a different economic category altogether and should be brought within the tax net. Such a distinction is entirely consistent with both classical public finance and the original scheme of the Income-tax Act, 1922.

The third reform concerns the fragmented structure of Pakistan’s income tax system. The current regime has abandoned the foundational principle of comprehensive income taxation. Separate tax blocks, final taxation regimes, minimum taxes, presumptive taxes and countless special provisions have created a system characterised by complexity, inequity and litigation.

Every source of income after computation as per respective head of income should be aggregated into a single taxable base ending all kinds of separate treatments. Additionally, artificial distinctions between different categories of income need to be removed.

After computing taxable income as suggested above, under a simplified structure, annual income up to Rs. 1.2 million should remain below taxable threshold. Income exceeding Rs. 1.2 million up to Rs. 3.6 million should be taxed at 5 percent. Income exceeding Rs. 3.6 million up to Rs. 6 million should be taxed at 15 percent. Income exceeding Rs. 6 million should be taxed at 25 percent. The corporate tax rate should simultaneously be reduced to 25 percent.

Excess profit tax or business profit tax, if necessary, for persons earning income beyond Rs. 200 million may be imposed through separate laws, as was done historically.

A broad tax base coupled with moderate rates will always outperform a narrow base burdened by excessive taxation. Pakistan’s fiscal challenges also require addressing another long-neglected constitutional anomaly: fragmented sales taxation.

The division between federal sales tax on goods and provincial sales tax on services has generated overlapping jurisdictions, multiple compliance regimes, cascading taxation and substantial administrative inefficiencies.

Trans-provincial services and entities operating across provincial boundaries require harmonised treatment. Their inclusion within a unified federal framework would significantly enhance efficiency and revenue mobilisation. Studies undertaken earlier suggest that comprehensive taxation of trans-provincial services could generate approximately Rs. 3 to 4 trillion in additional revenue over time through integrated administration and elimination of leakages.

Such potential alone is sufficient to alter Pakistan’s fiscal landscape fundamentally. At the same time, provincial governments must abandon their excessive dependence on federal transfers.

Pakistan’s provinces possess substantial taxation powers over agricultural income, agricultural land, urban immovable property, services and local economic activities. Yet provincial tax collection remains exceptionally low by international standards.

In successful federations, sub-national governments mobilise significant resources independently. Indian states collectively raise revenues approaching 8 percent of GDP through their own taxation powers. Pakistani provinces should be aiming for revenue mobilisation of at least 5 to 8 percent of GDP.

If provinces effectively utilised their constitutional powers while the federation rationalised tax expenditures, taxed agricultural rent, integrated trans-provincial taxation and implemented comprehensive income taxation, Pakistan’s chronic fiscal deficit would largely disappear.

The country would no longer require excessive petroleum levies to compensate for weak tax policy. Dependence on borrowing would decline. Corporate taxation could become internationally competitive. Personal taxation could become simpler, fairer and more predictable.

The debate surrounding annual federal budgets, unfortunately, begins on a false premise. Pakistan does not suffer from a shortage of taxable capacity. It suffers from policy choices that favour exemptions over equity, fragmentation over simplicity and privilege over constitutional fiscal justice. The challenge is not only to discover new taxpayers. The real challenge is to stop subsidising powerful interests through the tax system while claiming insufficient resources for governance.

Fiscal sovereignty will remain elusive so long as trillions continue to be surrendered through tax expenditures, large sources of economic rent remain untaxed and constitutional taxing powers remain underutilised.

The choice before policymakers is straightforward. Continue managing deficits through higher taxation of the compliant and greater dependence on debt or dismantle the structural distortions that create those deficits in the first place. The first path perpetuates debtocracy. The second offers a route towards genuine fiscal sustainability and constitutional federalism.

Copyright Business Recorder, 2026

Moreover, the EFF in doing so also significantly hinders the resilience enhancement objective of RSF programme of increasing public, and private investments, and regulation for meeting objectives that are necessary to rein in lower the pace of otherwise fast unfolding climate change crisis. Unlocking greater investments, better expenditure utilization in terms of reaching meaningful level of productive, and allocative efficiencies requires a non-neoliberal, non-austerity, counter-cyclical policy response. Here, non-provision of any enhanced special drawing rights (SDRs) allocation by IMF in the wake of deep aggregate supply shock due to the Middle East (ME) crisis add to country’s difficulties in adopting counter-cyclical policies.

More than that, it is strange to say the least that IMF Country Report comes while the ME conflict ushered in an unprecedented oil supply shock, while the price rise in March for Crude Brent was around thrice the price rise in a single month, in May 2008, yet the Report apart from commenting on the damage being done, or likely to happen to country’s economy, under a number of scenarios depicting increasing intensity of negative economic consequences, is business as usual kind of report, lacking any creative policy response like, for instance, calling for putting in place a meaningful wealth tax, and a tax on otherwise very high windfall tax on profits of energy companies in the wake of immense increase in oil prices due to the ME conflict; not to mention indicating releasing enhanced level of SDRs allocation that should have come in support of balance of payments, especially for significant net oil importing countries like Pakistan.

It needs to be pointed out here that while IMF has dedicated a whole ‘Box 2. Potential for further revenue mobilization’ there is no mention of these two taxes (indicated above) even though there has been a lot of discussion with regard to applying these taxes among policy circles, especially with regard to tax on windfall profits being reportedly actively discussed at the European Union (EU).

Hence, in any scenario – from moderate to high intensity – growth, inflation, and debt burden is like to face negative consequences, and the difference is only in degrees, but in no case is significant. What this requires is a counter-cyclical impetus to push the country out of highly sub-optimal growth equilibrium, that is, the country is moving in between of around 2 to 4 percent over roughly the medium-term.

This has happened primarily because firstly the stabilization phase went for a disproportionate, and lopsided aggregate demand squeeze policies – in terms of deep, and continued monetary-, and fiscal austerity policies – response, which needed much reined-in polices instead to incentivize public and private investments to support domestic production and exports in an overall effort to enhance aggregate supply and, in turn, to reach lower prices of domestic production, and imported goods.

Greater supply, and a possible adoption of ‘dual-track’ pricing mechanism – on the lines adopted successfully by China over the decades – along with envisaging a greater role of the public sector to support markets, in terms of subsidies and taxes, and better regulation to protect against possible price gouging practices, and organizations in better price discovery, not to mention higher exports leading to possible appreciation of domestic currency, and lower imported inflation, would have provided a much more balanced and effective way to reduce and keep inflation stable, and predictable, while also not unnecessarily making investment costly, and stability in fact considerably boosting growth beyond the shot-term; and the sacrifice even in the short-term was likely much less than appropriated by lopsided austerity policies being pursued.

In addition, other creative policies could have been to rein in the shock therapy agenda of the EFF programme, in terms of for instance, insistence towards rolling back the government’s footprint in economy when, on the other hand, learning from China’s success in much more creative approach in the shape of adopting ‘dual-track’ pricing mechanism to better deal with stability, growth, and resilience objectives.

Moreover, in terms of showing greater cognizance of providing support to the economy and supporting greater investment, the nature of conditionalities should have been re-categorized to provide greater space for government in dampening the emphasis on austerity, and pro-cyclical policy.

Here, two steps needed to be taken: firstly, shifting conditionality with regard to floor of social spending, or ‘Cumulative floor on general government budgetary health and education spending’ from currently non-binding, ‘indicative targets’ (ITs) to binding, ‘quantitative performance criteria’ (QPCs), and, secondly, taking the primary surplus target – more precisely ‘Ceiling on the general government primary budget deficit’ – from (binding) QPC, to (non-binding) ITs.

It needs to be mentioned that while primary surplus (or fiscal austerity) was achieved at Rs. 4.1 trillion, where the Report pointed out ‘The end-December primary balance target was met with a comfortable margin, and a primary surplus of PRs 4.1 trillion(3.2 percent of GDP) was recorded inFY26H1…’, a relatively small amount of federal PSDP at Rs. 873 billion – or roughly Rs. 1 trillion – was budgeted for FY2025-26 (with provincial PSDP at Rs. 2.1 trillion); not to mention high needs of subsidy provision have not been entertained, especially given a significant rise in poverty during the programme due to likely significant contribution from overall austerity, and pro-cyclical policy stance adopted.

Hence, the Report is quite oblivious of unprecedented oil supply shock and price rise of oil in terms of better encompassing the extent of negative impact on macroeconomy, growth, welfare, and resilience, and the immense response needs generated in the wake of the ME conflict.

Unfortunately, the Report, both in terms of IMF’s response, and more shockingly with regard to lack of emphasis on significant negative impact of the ME conflict by authorities when people and business have come under severe economic stress due to oil price shock, places only mild attention to the negative outcomes of the conflict.

In this regard, the report lacks appropriately linking the extent of negative impact of the conflict with possible lot more adverse scenario predictions in terms of identifying policies to prepare for that eventuality, and which is shifting towards counter-cyclical policy, and hastening revisiting the neoliberal, austerity, and pro-cyclical basis of IMF programme along with addressing apparent contradictory approach between EFF, and RSF programmes, in terms of underlying economic philosophy, which have led the country on high growth, and resilience sacrifice for very shallow, and short-term macroeconomic stability basis.

An October 2025 World Bank published ‘Poverty & equity brief’ on Pakistan pointed out: ‘The poverty rate, measured at the new LMIC [low- and middle-income country] international poverty line threshold, is estimated to have decreased to 45.0 percent in FY25 ($4.20/day 2021 PPP) from 47.1 percent in the previous year.’ One wonders, why then in the IMF Country Report, this poverty rate is not taken, which represents a much more recent situation of poverty?

Instead, the Report takes FY19 number for poverty, which according to ‘Poverty rate at national poverty line(s)’ is at 21.9 percent, or approximately 22 percent. Hence, it is a little more than half of what World Bank’s poverty number is for FY25, and which is depicting poverty before substantial recession-causing shocks in the shape of Covid-19 pandemic, the Ukraine War, along with years of practice of monetary- and fiscal austerity policies over around the last medium-term.

(To be continued)

Copyright Business Recorder, 2026

At the heart of these persistent issues lies an institution that has outlived its usefulness: the Planning Commission, now operating under the Planning Division. Born in the post-independence era of state-led development, it remains frozen in a 1960s mind-set while the global economy has transformed dramatically around it. Reforming or reimagining this body is not merely an administrative tweak; it is essential for unlocking Pakistan’s economic potential in the 21st century.

The origins of central planning in both India and Pakistan trace back to the prevailing intellectual fashions of the 1940s and 1950s. Newly independent nations, influenced by Soviet-style Five-Year Plans and a widespread belief in government orchestration of development, embraced the idea that poverty could be engineered away through centralized control.

India’s Planning Commission, established in 1950, drew from the Bombay Plan and the mathematical models of P.C. Mahalanobis, reflecting Nehru’s vision of state-driven industrialization. Pakistan followed suit, though its version was largely imported through foreign advisers from the Harvard Advisory Group, the World Bank, and other international bodies. This was a cut-and-paste exercise, lacking deep local intellectual roots or ownership.

While many countries that adopted similar models have since abandoned or radically overhauled them, Pakistan has clung to the old machinery. South Korea moved away from rigid planning by the 1980s, Malaysia repurposed its commission into a strategy-focused entity, France dissolved its planning body in 2006, and India replaced its Planning Commission with NITI Aayog in 2014. These shifts recognized that the era of shortages, closed economies, and heavy state control had ended. Yet in Pakistan, the Planning Commission endures, largely unchanged in form even as its substance has eroded.

India’s transition offers a compelling lesson. The old Planning Commission had devolved into what critics called a “permission raj without imagination,” focused on approving projects and guarding bureaucratic turf rather than fostering genuine economic dynamism. NITI Aayog represented a philosophical break: from planning to thinking.

It does not approve individual projects or control budgets. Instead, it develops long-term reform frameworks, maintains performance dashboards for states, supports implementation, promotes competitive federalism, and convenes experts across government and academia. It functions as a coordinating research body, emphasizing ideas and evidence over administrative gatekeeping. This change has helped India adapt to a liberalized economy where markets, incentives, and institutions drive progress.

Pakistan’s experience has been far less successful. Once a hub of intellectual activity, the Planning Commission has been reduced to clerical functions, rubber-stamping thousands of PC-1 forms for projects that flood the Public Sector Development Programme (PSDP). Political interference has compounded the damage.

Under Bhutto, nationalizations bypassed planning mechanisms; under Zia, PSDP allocations became tools for patronage; and in later years, IMF programmes often dictated austerity while prime ministers pushed pet projects. The result is a PSDP bloated with scattered, half-baked schemes lacking coherence, proper evaluation, or asset maintenance. Throw-forwards mount, delays and cost overruns are routine, and there is no comprehensive asset registry. What began as a planning engine has become a paperwork warehouse, with little discernible impact on sustainable economic growth.

This stagnation reflects a deeper intellectual failure. The Haq-HAG model, which was shaped by Mahbub-ul-Haq and the Harvard Advisory Group in the 1960s, suited its time: it emphasized capital accumulation, foreign aid, and large infrastructure pushes through five-year plans and incremental capital-output ratios. But economics has evolved profoundly since then.

Nobel Prize-winning work has shifted focus to markets, incentives, institutional quality, productivity, and governance. Ideas of reform and evidence-based policy have replaced blueprints and big pushes. Pakistan’s planning apparatus, however, never made this transition. It retains the old architecture of state-led investment while losing the intellectual rigour that once animated it.

The consequences are visible across Pakistan’s development landscape. Fragmented budgeting encourages “brick and mortar” projects without robust business plans or considerations of long-term productivity. Political capture influences every stage of the project cycle. Public assets—universities without adequate faculty, stadiums detached from sports ecosystems, convention centers generating no revenue—languish without maintenance or evaluation. Hidden subsidies benefit officials rather than the public.

Bureaucratic control dominates, side-lining technical expertise and research collaboration with universities and think tanks. The development budget incentivizes spending for its own sake, disconnected from outcomes or performance. Most alarmingly, the PSDP has morphed into a political slush fund, littered with failed or excessively costly projects that deliver little economic or social return. These underperforming initiatives drain scarce resources and erode public trust; they should be systematically identified, closed down, and phased out to clear the way for a genuine performance-based system.

A reformed planning function must break from this legacy entirely. Pakistan needs a new ‘Growth Commission’, entirely devoid of politics and staffed exclusively with top-tier experts selected on merit rather than political appointments. This body should serve as a professional, independent institution laser-focused on accelerating sustainable economic growth.

The goal should be a shift to performance-based systems, where resources align with measurable results rather than inputs. Merging the development and recurrent budgets would eliminate the artificial divide that distorts priorities and encourage holistic fiscal management. This Growth Commission could coordinate research across institutions, regularly assess reforms, and report publicly on progress, fostering accountability and evidence-driven decision-making.

Competence must return to the core. Free from political interference, the Commission should focus on managing performance contracts with ministries, conducting rigorous evaluations, and interfacing with the best minds in economics, engineering, and data analysis from both within Pakistan and the global diaspora. An asset registry, potentially managed through a Public Wealth Fund, would track and optimize public sector holdings, treating them as national resources to be stewarded for maximum value rather than political spoils. Regular balance sheet updates and evaluations would bring transparency and discipline to public wealth management.

Such reforms would transform the Planning Division from a bureaucratic graveyard of projects into a living institution dedicated to strategic thinking and progress. It would prioritize productivity enhancements, institutional improvements, and competitive dynamics across provinces, much like NITI Aayog has sought to do. By design, this ‘Growth Commission’ would operate above partisan considerations, ensuring that long-term national interests prevail over short-term electoral gains. Pakistan cannot afford to remain trapped in mid-20th-century structures while competitors advance. The choice is clear: cling to outdated forms that deliver diminishing returns or embrace a modern, agile approach that plans for real outcomes—better governance, higher productivity, and inclusive growth.

The PSDP, long criticized as more political fund than development tool, must evolve accordingly. By shutting down failed and low-return projects and focusing instead on evidence, evaluation, and performance, Pakistan can ensure public investment actually builds lasting assets and capabilities. This requires political will to depoliticize key processes and empower technocrats and researchers. It also demands engagement with academia and civil society to generate fresh ideas tailored to Pakistan’s context.

Pakistan stands at a crossroads. Decades of following the same planning rituals have yielded modest growth punctuated by crises. Reforming the Planning Commission into a truly independent ‘Growth Commission’ offers a pathway to break this cycle. By learning from global experiences, including India’s, and aligning with contemporary economic thought, we can build institutions that serve the future rather than the past. It is time to stop merely planning projects and start planning genuine, sustainable progress for the people of Pakistan. The nation’s youth, entrepreneurs, and aspiring middle class deserve no less. Only through bold institutional renewal can we hope to realize the economic promise that has eluded us for too long.

Copyright Business Recorder, 2026

The warning signs are now visible in nearly every major economic indicator. According to the latest State Bank of Pakistan (SBP) data, FDI declined by 31 percent during the first ten months of the current fiscal year, falling to USD 1.409 billion. For a country of more than 250 million people with strategic geographic relevance and vast untapped potential across energy, mining, agriculture, manufacturing, logistics, information technology, tourism, and infrastructure, such inflows reflect more than cyclical weakness. They point toward a widening gap between national potential and governance capacity.

The issue, therefore, is no longer simply about attracting investment. It is about whether Pakistan possesses the institutional coherence, policy continuity, and execution capability required to compete in an increasingly integrated and highly competitive global economy.

At the center of every successful economic transformation lies one defining principle: continuity of direction. Countries that industrialized successfully and sustained long-term investment inflows did not rely on ad hocism, fragmented authority, or short-term improvisation. They built coordinated governance systems where investment policy, industrial strategy, taxation, exports, infrastructure, energy, technology, and human capital development operated under a unified long-term framework.

Pakistan, unfortunately, has moved in the opposite direction!

Economic management today remains dispersed across multiple ministries, regulatory bodies, provincial authorities, sectoral institutions, and parallel coordination mechanisms that often operate without strategic synchronization. Instead of functioning through one coherent national economic vision, the system frequently operates through compartmentalized decision-making, overlapping jurisdictions, and reactive policy adjustments. Economic governance becomes particularly difficult when policymaking authority is distributed across multiple institutional centers without unified strategic coordination or clearly aligned accountability.

The consequences are visible across the broader investment and business environment. Investment inflows remain weak, export competitiveness continues to lag regional peers, industrial productivity remains stagnant, and domestic investors increasingly adopt defensive rather than expansionary behaviour. Businesses delay investment decisions due to policy reversals, inconsistent taxation, regulatory unpredictability, administrative uncertainty, and lack of continuity in economic direction.

This is not because Pakistan lacks entrepreneurial capacity or market opportunity. Pakistani businesses continue demonstrating resilience despite extremely difficult operating conditions. The deeper issue is that the overall governance environment does not consistently support long-term capital formation, industrial expansion, and investor confidence.

Investment behavior ultimately follows a simple economic logic: policy clarity reduces uncertainty, lower uncertainty improves confidence, and confidence drives capital allocation. Where governance becomes fragmented, uncertainty rises across the economic chain. Investors begin pricing unpredictability into their decisions, increasing the cost of capital and reducing long-term commitments. Investors evaluate not only economic opportunity, but the State’s consistency of behaviour over time.

Capital does not fear risk alone; it fears unpredictability.

This is why countries competing successfully for investment focus less on slogans and more on institutional consistency. Singapore institutionalized long-term economic planning through the Economic Development Board (EDB). Saudi Arabia transformed its investment ecosystem through coordinated execution under Vision 2030 and the Ministry of Investment (MISA). Vietnam integrated export-led industrialization with investment promotion, infrastructure development, and workforce planning under a coherent national strategy. Indonesia, Malaysia, the UAE, Qatar, Kazakhstan, and Uzbekistan all pursued sustained reforms through continuity, institutional clarity, and synchronized execution.

The common lesson across these economies is straightforward: investment flows toward systems that remain predictable beyond political cycles and administrative transitions. No country has sustained long-term economic growth without integrating investment policy with export competitiveness and industrial productivity.

Pakistan’s challenge, therefore, is not simply attracting investors; it is rebuilding economic credibility.

One of the most damaging dimensions of Pakistan’s governance model is the absence of long-term continuity. Almost every incoming administration attempts to redesign priorities, replace structures, launch new initiatives, or abandon previous frameworks before institutional maturity can develop. As a result, the country continues operating through short-term firefighting rather than medium and long-term economic strategy.

No economy can sustainably attract investment where policies remain vulnerable to administrative changes, bureaucratic interpretation, or political transition.

This credibility gap extends beyond foreign investors. In every successful economy, domestic investors serve as the first signal of confidence. Foreign capital rarely commits long-term resources where local investors themselves hesitate to expand. Weak domestic investment activity, therefore, reflects more than liquidity constraints; it reflects declining confidence in governance predictability and future economic direction.

The ongoing debate surrounding the Board of Investment (BOI) and the Special Investment Facilitation Council (SIFC) should be viewed within this broader context. Institutional fragmentation in investment governance is not an isolated issue; it reflects a wider pattern of fragmentation affecting taxation, trade policy, industrial planning, energy pricing, infrastructure coordination, and regulatory administration.

(To be continued tomorrow)

Copyright Business Recorder, 2026

The headline tariff move is one consumers can feel. The cost of electricity has come down by 10.31 rupees per unit between June 2024 and June 2025, and 9.01 rupees per unit between March 2024 and April 2026. The industrial cross subsidy has been removed at 4.04 rupees per unit. The Bijli Sahulat package and the cut in the EV tariff from 71 rupees to 39 rupees have offered targeted relief to households, making the transition to cleaner mobility. The PTV fee, that quiet line item nobody quite understood, has been eliminated.

Behind these consumer-facing moves sit some hard-fought structural shifts. The government has settled or is in the process of settling 1,225 billion rupees of circular debt through a structured loan, an exercise that brings the sector closer to a workable cash flow rather than the perpetual moving target of unpaid bills.

The renegotiation of the IPP contracts is the line on the page that will pay dividends for years. 3.7 trillion rupees of savings have been booked from these renegotiations, with seven RFO-based IPPs terminated outright. Seventeen units of redundant GENCOs have been put up for auction. The Indicative Generation Capacity Expansion Plan, submitted earlier this year, is expected to save 17 billion dollars in capital expenditure and has already cut the average post-tax consumer burden by approximately one rupee per unit.

The institutional architecture has been overhauled. The Competitive Trading Bilateral Contract Market, the multi-buyer model that the country had talked about for the better part of a decade, has been operational since 22 January 2026. The Power Planning and Monitoring Company has been set up. The NTDC has been restructured around efficiency rather than scale. Professional boards are being appointed at the distribution companies, replacing a culture in which board seats were a parking lot for the politically connected.

On the distribution side, where Pakistan’s losses have historically been deepest, the picture is improving. The overall improvement runs to 193 billion rupees, with 45 billion rupees of that booked in FY 2025-26 alone. Distribution company efficiencies were the missing variable in every previous reform attempt, and they are finally being addressed at the operational level rather than through circulars.

Solar is no longer the side show it once was. Twenty-seven thousand tubewells have been solarised in Balochistan alone, a province where the cost of running diesel pumps had become a defining hardship of rural life. The net metering regime has been kept favourable for existing consumers, with the government holding to its payback guarantee for legacy installations. For new consumers, net billing continues to offer a reasonable return on investment, while off-grid consumers remain entirely unaffected by the regulatory adjustments.

The strategic fuel supply reserves are being built up, a lesson absorbed from the experience of the Strait of Hormuz shock. Pakistan kept four weeks of fuel reserves during the peak of that crisis, and the institutional intent now is to make that the floor rather than the ceiling.

There are still hard problems on the table. Transmission losses remain higher than they should be. The tariff structure, even after rationalisation, still carries the burden of legacy obligations that will take years to amortise. Privatisation of the distribution companies, with three expressions of interest expected in May 2026 and two more progressing, will be the test of whether the structural commitment holds against the inevitable political resistance.

What separates this round of reform from previous ones is the operational discipline behind it. The numbers are being reported, the contracts are being renegotiated rather than rolled over, and the institutional separations between policy, regulation, and operation are being respected in practice rather than only on the org chart. For a sector that broke the back of more than one previous reform attempt, that discipline is itself the story.

Copyright Business Recorder, 2026

“HA as in, wait let me guess — Heave-to Albania?”

“Excuse me?”

“Albania is a country in Europe with 51 percent Muslims, but it isn’t a country where Muslims go on a religious pilgrimage – like Saudi Arabia and Iraq and Iran and….”

“Well the European Union (EU) undertook a survey recently in which the Muslim majority has shrunk to 45.7 percent, which is sizeable but….”

“But less than half!”

“Precisely however the survey notes that 10 percent Albanians did not respond….”

“Interesting, did our Prime Minister or his deputy ask the top EU diplomat when she visited Islamabad recently about this new and improved survey classification? I mean I had heard of the undecided being in a separate category but not…”

“Our Prime Minister would say beggars can’t be choosers and the deputy would say let me check with my samdhi ji.”

“Maybe later — the samdhi ji is still angry at being kicked out of the Prime Minister’s House and…”

“It’s been nine years already!”

“Give it a cool 10, that’s a round number, anyway is there any Jewish population in Albania?”

“Good heavens where did that come from?”

“Ivanka Trump and Jared Kushner have bought an island off Albania and plan to constrict an exclusive….”

“Hey silly it doesn’t matter because the island is off the coast of Albania so no Muslims allowed. But thank you for letting me know, I will pass it on to Pakistani mediators, I mean Jared Kushner must be very busy right now so negotiations with Iran….”

“Witkoff is not otherwise engaged, I hear.”

“You don’t think Witkoff will visit the place! I am sure he would be offered a flat or plot….”

“Meanwhile the supply disruptions in the rest of the world….”

“Hey get your facts straight.”

“Can I make a suggestion?”

“What?”

“If the mediators offer the islands off the coast of Karachi….”

“Don’t be facetious.”

Copyright Business Recorder, 2026

Tokyo certainly thinks it is. Officials are once again warning of intervention, traders are watching every comment from the Bank of Japan and markets are asking how much further policymakers are willing to tolerate currency weakness. Yet the more interesting question is whether the yen is merely the first visible crack in a much broader story unfolding across Asia.

Three months into the US-Israeli war on Iran, investors remain focused on oil prices, ceasefire rumours and diplomatic headlines. Fair enough. Oil remains the most immediate transmission mechanism. But has the real fault line now shifted from the commodity market to the currency market?

The relationship is straightforward enough. Higher oil prices worsen the terms of trade for energy-importing economies.

A stronger dollar compounds the problem by raising the local-currency cost of those imports. Inflation pressures rise, current-account balances deteriorate and central banks find themselves forced into increasingly uncomfortable decisions. Japan offers perhaps the clearest illustration because the process is happening in real time.

The dollar tends to strengthen during periods of heightened geopolitical uncertainty. The war has repeatedly reinforced that dynamic. At the same time, Japan remains heavily dependent on imported energy.

As oil prices rise, the yen comes under pressure. That pressure has now become severe enough to revive intervention fears, with authorities once again signalling their readiness to act if market moves become disorderly.

Yet Japan is hardly alone. India, Indonesia, Thailand, the Philippines and South Korea all depend heavily on imported energy. Their circumstances differ, but the underlying vulnerability is similar. Every increase in oil prices effectively acts as an external tax on economic activity.

Every surge in the dollar amplifies the burden. The question is not whether policymakers notice the problem. The question is whether they possess enough room to offset it.

The irony is that oil itself has recently offered a measure of reassurance. Prices have retreated from their highs whenever reports emerge of progress in negotiations between Washington and Tehran. Markets continue to respond enthusiastically to each suggestion that a deal may be close. But what exactly are traders pricing?

The physical market appears less convinced than the futures market. Inventories continue to fall. Strategic reserves continue to be drawn down. Governments and producers have spent months cushioning the shock through emergency stockpiles, operational flexibility and industrial adjustments. Those measures have worked remarkably well. Yet they have also consumed the very buffers designed to absorb disruptions.

That raises an uncomfortable question. Are markets becoming overly reliant on inventories in the same way they have become reliant on diplomatic headlines?

Commodity markets have avoided a far more violent repricing largely because inventories have filled the gap between disrupted supply and ongoing demand. Yet inventories represent time rather than production.

Every barrel released today is one that cannot be released tomorrow. Every stockpile drawdown reduces the system’s capacity to absorb future shocks. At what point do markets begin focusing less on ceasefire rumours and more on the arithmetic of declining buffers?

The answer matters because demand destruction has already begun appearing across parts of the global economy. Consumers are driving less. Airlines are adjusting routes. Businesses are looking for efficiencies.

China has seen a notable decline in oil demand as electrification accelerates and consumers adapt to higher fuel costs. Similar trends are emerging elsewhere. Demand destruction has helped keep prices from rising even further, but it carries its own economic consequences.

There is another layer to this story. If inventories continue falling while demand destruction becomes the primary mechanism keeping prices contained, what happens when economic growth begins slowing at the same time? Policymakers would then face the familiar challenge of weaker growth combined with stubborn inflation pressures.

Markets spent much of 2025 assuming that inflation had largely been defeated. Has the war reopened that debate?

This is where the currency market becomes particularly revealing. Exchange rates aggregate multiple risks simultaneously. Growth expectations, inflation pressures, interest-rate differentials and capital flows all converge in one price. The yen’s weakness therefore reflects more than oil. It reflects broader concerns about how economies absorb persistent external shocks.

For Pakistan, the implications should feel familiar. The country remains vulnerable to both higher oil prices and a stronger dollar. Energy imports become more expensive. External financing conditions tighten. Inflationary pressures intensify.

Pakistan is hardly unique in that respect. Much of emerging Asia faces variations of the same challenge. The difference is that some economies possess larger reserves, stronger fiscal positions or more flexible policy frameworks than others.

Perhaps the recent decline in oil prices proves justified. Perhaps negotiations eventually produce a durable settlement. Perhaps inventories stabilise before reaching critically low levels. Markets are clearly willing to assign a meaningful probability to that outcome.

But what if they are wrong? What if the more important signal is not the latest move in crude futures but the growing strain visible in currencies across energy-importing Asia? And if Japan is already discussing intervention at 160, what might policymakers elsewhere be quietly worrying about?

The oil market triggered the initial shock. But the currency market increasingly looks like the place where Asia is counting the cost.

Copyright Business Recorder, 2026

The IMF’s latest country report projects real GDP growth at 3.6 percent in FY2026 and 3.5 percent in FY2027, while public debt is officially projected to fall from 72.8 percent of GDP in FY2025 to 70.1 percent in FY2026. These are positive signals.

But they are not proof of transformation. They show that Pakistan has regained some stability; they do not show that the economy has escaped its crisis cycle.

The real question is simple: will this stability be used to implement difficult reforms, or will it again be treated as enough? Pakistan’s repeated mistake has been to confuse crisis management with reform.

Fiscal tightening, tariff adjustments, exchange-rate flexibility, and monetary discipline can prevent immediate collapse. But they do not automatically create exports, productivity, investment, jobs, or confidence. That requires a deeper domestic reform compact.

The first priority is tax reform. Pakistan cannot finance development, debt reduction, climate resilience, or social protection with such a weak and narrow tax base.

The report rightly identifies the problem: agriculture, real estate, retail, and parts of the services sector remain under-taxed, while petroleum products and documented sectors carry a disproportionate burden.

The GST system is weakened by exemptions, concessions, zero-rating legacies, fragmented taxation of services, and weak compliance.

But the answer should not be another round of ad hoc taxation. Pakistan already taxes the compliant too heavily and the non-compliant too lightly. Real tax reform must focus on five actions: enforce agricultural income tax through provincial-FBR data integration; bring retailers into a simplified digital tax regime; rationalise GST exemptions; tax real estate on realistic valuations; and reduce reliance on withholding taxes and petroleum levies. The objective should be a broader, fairer, and more predictable tax system, not merely higher collections from the same taxpayers.

The second priority is energy reform. Pakistan has often interpreted energy reform as raising electricity, gas, and fuel prices. Cost recovery is necessary; the country cannot afford to build new circular debt through under-pricing. But tariff hikes alone are not reform. Passing inefficiency to consumers protects sector accounts while hurting households and weakening the industry.

The real test is cost reduction. This requires reducing transmission and distribution losses, improving DISCO governance, enforcing bill recovery, rationalising capacity-payment pressures, reforming gas pricing, and addressing RLNG contract rigidities. Private-sector participation in DISCOs should be pursued with clear performance benchmarks, not as a cosmetic change of ownership. Tariff design must protect lifeline and vulnerable consumers, while industrial tariffs should become more predictable and regionally competitive. Energy reform should reduce the cost of doing business, not merely raise the cost of survival.

The third priority is debt management. Pakistan’s debt may appear sustainable under baseline projections, but the risk of sovereign stress remains high. This is because financing needs are large, reserves are still limited, banks are heavily exposed to government securities, and contingent liabilities from energy and state-owned enterprises can quickly reappear in the fiscal accounts. Debt sustainability is therefore not secured by arithmetic alone; it depends on credibility.

Pakistan needs a debt strategy that reduces rollover risk, lengthens maturities, diversifies the investor base, and deepens the domestic bond market. The sovereign-bank nexus must be reduced gradually so that banks finance private investment rather than mainly financing the government. Fiscal risk reporting should be strengthened by regularly disclosing guarantees, circular debt obligations, SOE losses, and public-private partnership liabilities. Hidden liabilities are still liabilities; ignoring them only makes future adjustment more painful.

The fourth priority is reform of state-owned enterprises and procurement. Pakistan cannot continue to finance inefficient public entities through guarantees, subsidies, arrears, and repeated bailouts. SOE reform must move from announcements to execution. Commercial SOEs should either be restructured and privatised, or closed where there is no clear public purpose. Boards should be professional, accounts transparent, and performance contracts enforceable. Public procurement should be fully competitive, digital, and transparent, with limited exceptions. Preference for public entities in procurement should not become a backdoor subsidy.

The fifth priority is export and productivity reform. Stabilisation without growth will produce fatigue. Pakistan cannot sustain external stability through import compression, remittances, and borrowing alone. It needs a production and export strategy. This means reducing anti-export bias in tariffs, improving logistics, ensuring timely refunds, lowering regulatory uncertainty, supporting skills development, and linking industrial policy with productivity targets. Export policy should move from general slogans to product-market strategies: which products, which markets, which firms, which constraints, and which public actions?

Geopolitical risk makes this agenda urgent. Pakistan is a net energy importer and remains exposed to oil-price escalation and supply shocks from the Middle East. A sharp rise in oil prices would widen the import bill, pressure the current account, weaken the exchange rate, raise domestic fuel and electricity prices, and complicate inflation management. If the government absorbs the shock through subsidies or delayed price adjustments, fiscal space will shrink further. Energy efficiency, fuel conservation, strategic reserves, targeted support, and export growth are therefore not side issues; they are macroeconomic safeguards.

The sixth priority is social protection and human capital. Reform cannot survive if it is seen only as higher taxes and higher tariffs. In a fiscally constrained economy, the state cannot protect every price, but it must protect vulnerable people. BISP, Kafaalat, health, education, nutrition, and targeted transport support should be treated as core reform instruments, not residual spending. At the same time, social protection must be better targeted, regularly updated, and linked where possible with school attendance, nutrition, skills, and women’s economic participation.

The final priority is policy credibility. Investors, firms, and households respond less to announcements than to consistency. Reform must therefore be sequenced and credible: protect the vulnerable while broadening the tax base; reduce energy losses while aligning tariffs with costs; disclose liabilities before managing debt risks; and remove distortions before expecting investment.

External financing and programme discipline can create breathing space, but domestic ownership must convert it into reform. Pakistan has used many stabilisation episodes to survive immediate crises. This one must be used to change the structures that keep producing them.

Pakistan’s economic moment should therefore be judged not by the release of the next tranche, but by progress on a fair tax system, an efficient energy sector, a credible debt path, disciplined public enterprises, competitive exports, and targeted social protection. Stability is necessary, but it is only the beginning. Real reform begins when crisis management ends.

Copyright Business Recorder, 2026

The recently established Tax Policy Office is a step in the right direction. A dedicated body for tax policy formulation could bring the coherence and long-term direction that Pakistan’s fiscal framework has long lacked. But institutional reform only matters if it’s backed by genuine autonomy, adequate resources, and the courage to pursue gradual, predictable change rather than short-term revenue grabs.

Even where immediate reform isn’t feasible, a clearly articulated roadmap signals intent. And right now, investors and businesses are watching closely for exactly that.

The core problem is straightforward: Pakistan’s tax base is too narrow. Agriculture, retail, wholesale trade, real estate, and services together account for a significant share of GDP, yet their presence in the formal tax system remains remarkably thin. That absence doesn’t go unnoticed. It falls, instead, on documented businesses and salaried professionals — people and companies that have chosen to operate within the system — that end up carrying a burden that should be shared far more widely.

This isn’t just unfair. It’s counterproductive. Pakistan’s standard corporate tax rate sits at 29 percent, already above Bangladesh’s 25 percent and at the upper end of India’s range. Add in additional levies and the effective burden can climb to 46 percent, a figure that is difficult to justify when trying to attract investment in a competitive region.

The message it sends is the wrong one: that compliance is penalised while informality goes largely unpunished.

The compliant taxpayer’s experience compounds the problem. Businesses navigating Pakistan’s tax system today face overlapping provisions across multiple laws, extensive documentation requirements, frequent procedural changes, and a proliferation of withholding and advance tax obligations that squeeze working capital.

Legitimate refunds sit unprocessed for months and, in some cases, for years, tying up funds that businesses need to operate. This is the daily reality of choosing to be formal and it quietly pushes people towards the margins of the undocumented economy.

The Overseas Chamber of Commerce and Industry (OICCI), whose members are among the largest taxpayers and investors in the country, has put forward a set of proposals aimed at rebalancing this equation. They include a phased elimination of the Super Tax over three years, a gradual reduction in the corporate tax rate from 29 to 25 percent, and a reduction in sales tax on goods to 15 percent.

Each of these measures is designed not to reduce the state’s capacity to collect revenue, but to make the system less punishing for those already within it.

The proposals for salaried taxpayers carry a quiet urgency. Abolishing the 10 percent surcharge on salary income and capping the maximum personal tax rate at 25 percent would offer much-needed relief to skilled professionals at a time when cumulative inflation between FY23 and FY26 has eroded real incomes by nearly 38 percent.

The concern isn’t abstract. Brain drain is accelerating, and the professionals leaving are precisely those the formal economy depends on most.

None of this works without simplification. Fewer rates, reduced reliance on withholding taxes, streamlined filing, and greater automation would lower the cost of compliance and reduce the scope for discretionary interpretation. A tax system that is easier to navigate is one that more people will actually use.

Pakistan has a choice. It can continue extracting more from a shrinking pool of compliant taxpayers while the undocumented economy expands quietly around it. Or it can build something better, a system where the burden is broad, the rules are clear, and choosing to be formal feels like the sensible thing to do rather than a disadvantage.

That second path is harder. But it’s the only one that leads somewhere worth going.

Copyright Business Recorder, 2026

Pakistan’s economic reform discourse is increasingly moving beyond taxation and fiscal stabilization toward deeper questions of institutional efficiency, regulatory predictability, and enforcement of economic rights. As the country navigates a difficult economic transition under broader governance frameworks, dispute resolution has quietly emerged as a central issue affecting investor confidence, commercial certainty, and economic trust.

Within this evolving landscape, Alternative Dispute Resolution (ADR) is being positioned not merely as a legal mechanism, but as part of a wider economic governance strategy. Under current reform initiatives, ADR is increasingly viewed as a practical instrument for improving contract enforcement, reducing delays, and strengthening economic justice.

A long history, limited institutional evolution

Despite renewed policy attention, ADR is not new to Pakistan or the broader region. Informal dispute resolution mechanisms have long existed through jirgas, panchayats, musalihat committees, and community-based mediation structures.

Formal arbitration also has a long legal history. Pakistan inherited the Arbitration Act 1940, which governed arbitration for decades. More recently, the Alternative Dispute Resolution Act 2017 provided broader statutory recognition to mediation, conciliation, and negotiated settlement mechanisms.

Yet despite this historical and legislative foundation, ADR has not evolved into a consistently trusted institutional system. The core issue is not absence of law or tradition, but weak institutional modernization, uneven professionalization, and uncertain enforceability.

The economic cost of delayed justice

Dispute resolution is no longer a purely legal concern. Globally, governments increasingly recognize that economic growth depends on institutions capable of resolving disputes fairly, predictably, and within reasonable timeframes.

Commercial certainty is ultimately grounded in confidence that contracts, obligations, and legal rights will be enforced without excessive delay or procedural distortion.

Pakistan’s judicial landscape reflects the scale of the challenge. More than 1.8 million cases remain pending in the district judiciary, while hundreds of thousands more burden the superior courts. Commercial disputes often take years due to procedural delays, overlapping jurisdictions, and prolonged appeals.

These delays are not merely legal inefficiencies; they are economic constraints that increase uncertainty, weaken contract enforcement, and raise investor risk. Predictability — central to investment decisions — becomes compromised.

This is why economies with strong investment climates have integrated ADR into broader governance systems.

The global ADR ecosystem

Globally, ADR has developed into a sophisticated institutional system supported by internationally recognized arbitration and mediation centres. Institutions such as the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC), Dubai International Arbitration Centre (DIAC), and the International Centre for Settlement of Investment Disputes (ICSID) have become central pillars of global commercial governance.

The scale reflects growing reliance on ADR. The ICC alone registered more than 830 new arbitration cases in 2024, involving parties from over 130 jurisdictions, with disputes collectively worth hundreds of billions of dollars.

Singapore has built a globally trusted arbitration hub through neutrality and enforceability, while the UK embedded mediation within commercial practice. The UAE aligned ADR with its investment strategy, and India expanded mediation frameworks to address judicial backlog pressures.

Across these systems, the common denominator is not legislation alone, but institutional confidence.

ADR as a reform instrument

Pakistan’s current ADR push must be understood within this broader economic governance context. ADR offers a reform mechanism that is quicker to operationalise, less politically sensitive than judicial restructuring, and capable of producing measurable outputs such as settlement rates and case reductions.

In reform environments increasingly shaped by governance benchmarks and investment indicators, ADR naturally becomes an attractive entry point. It aligns with policy priorities focused on predictability, enforcement, and investor confidence.

However, the central challenge is not introduction of ADR frameworks, but building confidence in their outcomes.

The institutional credibility gap

Pakistan does not lack ADR laws or contractual mechanisms. Arbitration clauses, mediation provisions, and negotiated settlement structures already exist across commercial contracts, infrastructure projects, investment frameworks, and public-private partnerships.

The deeper issue is institutional credibility.

Pakistan still lacks a sufficiently developed ecosystem producing professionally accredited and internationally credible mediators and arbitrators. Procedural approaches vary widely across forums. Enforcement remains vulnerable to delay and judicial intervention. Even arbitral awards often face prolonged challenges, reducing the economic value of speed and finality.

The legal culture also remains litigation-heavy, where adjournments and prolonged litigation cycles often weaken incentives for early settlement.

Pakistan’s quasi-judicial system — including tribunals, regulators, and tax forums — also remains fragmented and uneven in enforcement capacity.

As a result, ADR is often perceived not as a robust institutional mechanism, but as a negotiated alternative operating outside the formal justice structure.

Economic justice and institutional trust

This is where the broader concept of economic justice becomes central.

Economic justice reflects the confidence that businesses and citizens place in institutions responsible for enforcing economic rights and contracts.

Efficient dispute resolution therefore becomes part of economic infrastructure itself — alongside taxation systems, regulatory governance, and financial oversight.

Pakistan does not lack ADR provisions; it lacks institutional confidence in ADR outcomes.

Without neutrality, enforceability, procedural consistency, and professional credibility, ADR risks becoming procedural compliance rather than meaningful reform.

Courts must support ADR

International experience highlights a critical principle: ADR succeeds where courts support it.

In effective systems, courts encourage settlement, minimize unnecessary intervention, and reinforce enforceability of outcomes. They function as facilitators of commercial certainty rather than extensions of prolonged dispute cycles.

In Pakistan, however, enforcement proceedings can sometimes become continuations of the original dispute, weakening confidence in both ADR and the broader justice system.

The objective, therefore, is not to develop ADR as a parallel justice structure, but to embed it within the broader judicial ecosystem.

Building a credible ADR ecosystem

Pakistan’s reform strategy must focus on strengthening court-linked ADR systems, standardizing mediation and arbitration procedures, improving accreditation and professional training, and ensuring stronger enforceability of outcomes.

Government contracts and investment frameworks should incorporate dispute resolution clauses that promote early settlement while ensuring neutrality and legal certainty.

Equally important is institutional culture. ADR cannot succeed if procedural incentives continue to reward delay, technicality, and prolonged litigation.

Ultimately, sustainable economic growth depends not only on investment incentives or regulatory reform, but on confidence that economic disputes will be resolved fairly, efficiently, and predictably.

Reform signal or reform substance

Pakistan’s ADR push should therefore not be viewed merely as a procedural reform initiative. It reflects a deeper recognition that economic governance and dispute resolution are increasingly interconnected.

ADR can become an important pillar of Pakistan’s economic governance reforms — but only when it evolves from a procedural shortcut into a credible institution of economic justice.

Copyright Business Recorder, 2026

In January 2025, the State Bank’s foreign exchange reserves had reached a record of USD 16 billion. The rupee was stabilized.

The IMF has had a 25th Extended Fund Facility of USD 7 billion in Pakistan since 1958, and it is on track. The country’s policymakers, after years of crisis-to-crisis lurching, were, for the first time in a generation, tentatively planning to grow rather than to cope with collapse.

All those gains are in acute danger by May 2026. A war on Iran by the US and Israel, and its energy crisis, the devastating 2025 monsoon floods, and the unresolved specter of a new wave of military conflict between India and Pakistan are dissolving and rebuilding, and Pakistan cannot afford to lose.

As of March 4, Iran had virtually closed the Strait of Hormuz, through which about 20 percent of the world’s oil trade and about one-fifth of global LNG flows pass. The Brent crude price had shot up to near USD 120 per barrel and is now around USD 110 per barrel.

In Asia, LNG spot prices increased by more than 140 percent. Qatar and the UAE account for 90 percent to 99 percent of Pakistan’s total LNG imports and approximately 80 percent of its crude oil imports. This was a serious external shock to most economies, while for Pakistan it was structural exposure at its death knell.

As recently as January 2026, Pakistan had been operating a surplus of LNG – demand had dropped three years in a row as cheap solar panels flooded the market, and the government had been diverting surplus cargoes to other nations. That excess wilted away in weeks.

In January, Pakistan received 12; in March, the month the war started, it only received 2 shipments of LNG. The management of the National Electric Power Regulatory Authority (NEPRA) has expressed concern about the near-zero LNG stock levels in the coming months. Given that LNG accounts for almost 25 percent of Pakistan’s electricity, its impacts on industrial and agricultural production are immediate and dire.

The weekly oil import bill of Pakistan, as the Prime Minister (PM) Shehbaz Sharif himself has said this week, has increased almost 167 percent compared to its level before the war, from USD 300 million to USD 800 million.

The government had to declare extensive emergency austerity measures, a 4-day workweek, mandatory work-from-home rules, school closures, and limits on social gatherings. “Pakistan does not have any strategic reserves, even a day of in stock, and is fully reliant on commercial stocks” (Pakistan Federal Petroleum Minister Ali Malik, May 2026).

On 26 June 2025, Punjab experienced severe monsoon floods, resulting in agricultural production losses of USD 4.2 billion. The national crop production fell by more than 12 percent, and a total of 2.23 million acres of farmland were destroyed. Damage covered about 60 percent of rice and 30 percent of sugarcane crops, and around 35 percent of cotton area.

Since agriculture accounts for 50 percent of the labour force and contributes 23 percent to GDP, the shock had far-reaching economic effects.

Cotton shortages are holding back the textile industry, sugar mills are not running at full capacity, and broken irrigation systems are threatening next crop planting. On the energy side, industrial electricity shortages are being exacerbated by LNG supply disruptions and a more than doubling of furnace oil prices.

The services sector, which accounts for more than 59 percent of GDP, is also affected by rising petrol prices, higher transport and food costs, and a decline in consumer demand in the informal sector, which provides almost 75 percent of Pakistan’s non-agricultural labour force.

Consequently, FY26 GDP growth will now be reduced to 2.5 percent-3.0 percent, down from the target of 4.2 percent.

To make matters worse, there is a risk to remittances, the cornerstone of the Pakistani external account. In 2025, the country’s current account entered into surplus for the first time in 14 years due to high inflows of Pakistani workers from GCC countries, equivalent to about 5 percent of GDP. This support is now squarely under threat due to war. Hundreds of thousands of Pakistani workers might not be able to travel to GCC countries this year, and others are returning home earlier. A re-entry diaspora simultaneously reduces remittance inflows and strains a local labour market already facing over 8 percent youth unemployment.

Pakistan’s GDP growth in FY2026 is expected to be between 2.5 percent and 3.0 percent, given the shock across all productive sectors of the economy. In the event of severe crop losses, agriculture not only suffers but also leads to shortages of raw materials for textile industries and sugar factories, and to decreased exports as total import costs rise.

As the energy crisis worsens, so do the costs of inputs for industrial production, and thus, there is no motivation for investors to invest in the industry.

The situation is no better about service sector, which accounts for almost 60 percent of GDP, because rising fuel costs also raise transportation and food prices, thereby lowering consumer purchasing power.

Remittances from workers in the Gulf region would decrease due to the US-Iran conflict, which would reduce employment opportunities, weakening the sector that had served as an insurance mechanism against Pakistan’s trade deficit.

The rising cost of imported oil will push the government to impose austerity measures rather than increase expenditure. This way, when agriculture experiences shocks, energy costs increase, industries pull back, and people do not consume, leaving no room for the government to intervene.

Copyright Business Recorder, 2026

“I assume the poor guy you are referring to is Nawaz Sharif, now be nice – the guy is hurting a lot!”

“But remember when he returned from the UK after years of treatment in the UK he was cleared of all charges at the airport and….”

“I heard he was prescribed lithium?”

“Low dose or high dose?”

“I don’t understand.”

“High dose is for serious mental disorders and low dose is used as a supplement…”

“Supplement for?”

“For mild anxiety and to maintain an emotional balance.”

“Think: to be in the Prime Minister’s House one day and out on the streets the next must require an adjustment spanning years.”

“In a televised speech Bilawal referred to a guest arriving in G-B and I reckon he meant Nawaz Sharif who is there to campaign for elections.”

“One question: has the third party been taken on board?”

“The third party?”

“Well let me narrow it down: Shehbaz Sharif is not the third party – neither is Samdhi number one – hey why isn’t he accompanying Mian sahib….”

“Was Maryam Nawaz there?”

“No are you dodging my question?”

“Which one?”

“OK so let me ask another question: is Bilawal the third party?”

“Not clear right now, not as long as daddy is in the President’s House.”

“So is it the….hey where is Vawda these days – haven’t seen hide or hair of him for quite a while.”

“Maybe he has gone abroad.”

“Why would he need to do that? I mean it’s not as if….”

“It’s hot here and besides it’s the summer holidays.”

“Oh OK is he on lithium too? Was that your question?”

“No we had moved onto third party in the equation and you better shut up cause if you don’t know then you don’t deserve to know.”

Copyright Business Recorder, 2026

All of the above is true. All of the above is part of the success build-up. All of the above is inspiring. All of the above is motivating. All of the above is, however, not all in all for success. Many people dream. Many others envision. Some focus on destiny. Some have a clear concept of the final destination. Most of them never achieve the success they want. Statistics show a sorry conversion of dreams to reality. Classic research by the University of Scranton shows that 92 percent of people who set goals for new years abandon it in the first month. That means only 8 percent pursue it.

How many actually achieve them must be much less. The normal justifications are “do not have time”, “luck is not with me”, “my circumstances are soo…”, “it’s not practical”, etc. That brings us to the missing link between the dream and the destiny. That missing link is another ‘D’ and i.e., Discipline. A dream without discipline is a nightmare. Discipline seems a regimented repeatable act. It is; but it is much more. The “D” factor is the real trial of how true you are to your dreams and passions. Let us look at how the “D” factor is the real game changer:

D Factor#1- Commit ments to what you stand for- Discipline is not just a rule regulation game. It is the ability to know the destiny and the resolve to do it the right way. As a leader your character is based on certain values that you uphold. The first discipline is when circumstances in your personal and professional life are putting pressure to go against those values.

Will you have the discipline to withstand the pressure and live with the consequences of sticking to them? That commitment requires the discipline to say ‘no’, when it is so easy to say ‘yes’. Integrity is a most oft-repeated value by people and most leaders. How many times we have seen the most celebrated corporate heroes capitulate. In recent times they are caught fudging numbers to increase share values.

In contrast, we are in awe of the discipline of the Mandelas of the world. In corporate world, the example of the CEO of a leading company in Pakistan who took a stand on retaining lower staff and increasing their pay in COVID despite the stakeholders pressure are examples of the discipline to stand for your believes and values.

D Factor#2- Passion sustainability- If 92 percent people cannot sustain their resolves, it is a glaring gap. Another D factor is how deep, enduring and persistent is your passion against all odds. The discipline to keep going when everything inside you wants to give up is a major differentiating X factor. The most common example is about losing weight. Most diets fail. Most workouts are aborted. How deep and burning is the fire inside? The sports field is full of examples of how many talented people fade out quickly.

In contrast, the lesser talented people through sheer passion persistence rode through all the downs in the journey. Who in the world feels good and chirpy at 4am in the morning? Everyone fights the sleep, the heavy head, the dragging feet, and the mind that is making hundred excuses of taking one more hour off. The soft, warm mattress is irresistible.

The champions have the discipline to beat the alarm, their laziness, their heaviness. The talented in disciplines fading stars are beaten by the alarm day in day out. Even if they manage to get up and go out, the weather, the car, the door key all become excuses.

Michael Phelps, the swimming champion who won eight Olympic medals, trained for over 700 days without fail. In heat, in snow, in rain, on birthdays, on Christmas, he showed up and trained and drilled.

D Factor#3- Response to failure- The mood discipline is a key determinant of success. When things go well, you rise, and when they go sour, your mood is depressed and you cannot perform. Do you have the discipline of controlling your moods or do your moods control you? That is a huge “D” factor. When you constantly fail, but still hold on to your sagging spirits, for one more try, that is the test you win.

Abraham Lincoln lost 8 nominations and elections before he won. Recently, in his convocation speech of Dartmouth College, Roger Federer talked about the concept of moving ahead after failure. “When you lose every second point, on average, you learn not to dwell on every shot, you teach yourself to think, ‘OK, I double-faulted. It’s only a point.’

When you’re playing a point, it has to be the most important thing in the world, and it is. But when it’s behind you, it’s behind you. This mind-set is really crucial, because it frees you to fully commit to the next point and the next point after that, with intensity, clarity and focus.” Failure is part of success. It is this discipline of not letting the failure fail you that distinguishes the ordinary from the extraordinary.

Discipline is the hallmark of leaders. It is about determination. It is about devotion to your dreams. It is about perseverance despite the circumstances. It is about not letting obstacles stop you. It is about doing it when you hate to do it. It is about standing up when all is falling.

It is about not giving up. It is not about not giving in. It is about credibility. It is about resilience. It is about tenacity. It is about self-accountability. All these are values that form the strength of character of people, companies and countries. As Lou Holtz stated, “Without self-discipline, success is impossible, period.”

Copyright Business Recorder, 2026

A picture is worth a thousand words. This dictum can be true only if the picture is real, that is if it reflects the reality.

Recently, President Trump on his first-ever visit to China after being re-elected was highly hopeful for at least a ‘Panda Hug” if not for a real “Bear Hug” from President Xi Jinping. He, however, received a firm and stoic handshake, unlike the Chinese do. Readers may have seen or read that the then Prime Minister of China, Chou en Lai, would have a handshake with Z.A. Bhutto that would punishingly last for over 2 minutes at least, if not longer. In that handshake was always loaded a deep message.

The stoic attitude of Xi Jinping wasn’t a surprise; it was expected. The Chinese for over the last two years were on receiving end of a lot of muck that was thrown at their face, beginning with imposition of unrealistic tariff to hurling of almost threats to annihilate them economically.

The Chinese civilization’s core principles of operations in relation to politics are of being passively patient. Chinese do not operate on short-term scale or gains, they play long term. It is their patience that can frustrate and tire out the worst of their foes. The ages old Sun Tzu’s principles of ‘Surprise the enemy’ has remained in practice. By silence or by no reaction at all, the aims and the designs of an adversary are nullified. The USA experienced it first-hand. Times have changed. The world today is governed by a new order of multi-polar world, as against the uni-polar order that was dominated by the USA for over decades. America is now in a rush to regain foothold.

In the first-ever contact in 1971, facilitated by Pakistan, President Nixon met Chairman Mao and Premier Chou en Lai from a position of prominence being the unquestionable global economic power. The Chinese until then had not even started to open their economy and hence were “light years” behind the USA and most of the other major economies. Today, there is an entirely different People’s Republic of China to engage with. In any equation of either friendship or an adversary, they are no more on the weak side of the equation.

China is an economic powerhouse that sits on trillion of US dollars in reserves. Its foreign trade volume is a gigantic figure. The budget of a single successful state-owned enterprise could be larger than the annual budget of two to three developing countries, clubbed together. China is a powerful nation. Today it cannot be shoved away by the arrogance of the West, or its rhetoric.

The 12-16 renowned CEOs who were onboard the Air Force One weren’t taken to Beijing for sightseeing - they were meant to crack economic deals in fulfillment of the MAGA slogan. Apparently, they all returned empty-handed. The Chinese are soft in their demeanour but extremely tough on the negotiating table. Within the socialist system they have mastered the art of negotiation via the typical capitalist behaviour.

The fact that the thorny issue of Taiwan wasn’t mentioned during the visit is a triumph of Chinese political international policy. Chinese policymakers are astute as well as sound and mature in their assessments and outlook. No questions were asked or answered in relation to Taiwan.

It is a conviction of this scribe that People’s Republic of China will take back Taiwan without putting itself to a war; just as they took Hong Kong and Macau back. It is only a matter of time. They will decide the date of such occurrence. Meantime, they will continue to trade and engage with Taiwan. Recently, Beijing hosted the leader of opposition of Taiwan’s parliament. The union will happen. It is inevitable.

Leaders are expected to speak the least. They ought to be precise. They can’t afford for themselves the luxury to speak like a common man. In the arena of international diplomacy there exists a serious quantum of expedient duplicity. The pictures and statements released after due examinations and control , following high powered meetings, are actually ‘illusions’ or maybe even ‘optical illusions’.

A warm handshake or a bear hug is not necessarily a reflection of great friendship or camaraderie. Politicians and the media create a perception that differs from reality. A photo-opportunity is abused to lead the brain into misinterpretations — instead of seeing the actual image (the reality), the brain relies upon short-cuts or previous assumptions to draw own conclusions, which could very well be contrary to reality. Political pictures are a perfect mirage — a chimera, divorced totally from the truth.

Chinese don’t exhibit openly their likes or dislikes. In their culture it is considered that expression must never cause injury to others; and alternatively too, the Chinese are extremely conscious about public praise — they don’t like it. Self-effacement is a cultural streak in the entire north-east Asia covering the Korea (s), Japan, China, Taiwan and Hong Kong. They convey their messages through mature responses. Firstly, they don’t react on the spur of the moment. They aren’t hasty, as we are, to respond without considering all the ramifications of the reaction. In a subdued manner they take time to react. There is no room for knee-jerk reactions in their culture.

Fireside chat in the presence of the glaring media is also a stunt of sorts; it is all possibly pre-planned. Most of the media personnel permitted to ask questions are pre-cleared and pre-informed. They can also be asked to stick to the ‘script’.

Modi recently stepped out of the aircraft straight into the bridge — he walked out with his wide open arms to hug his host for the longest time. He audaciously held the arm of the host. All this enactment obviously was pre-planned to convey through ‘optics’ of what is essentially falsehood but portrayed as truth. India badly needed to brush aside its visible international isolation. This picture was considered a useful tool for that objective.

The Chatham House rule framed and devised in 1927, adopted by the Royal Institute of International Affairs, spells out the rules of the game for international diplomacy. For example, where a meeting or part thereof is held under this Rule, participants are free to use information without disclosing identity or affiliation of the speaker can be revealed.

Speak your mind is a dictum, but that does not provide a license to speak everything that comes to one’s mind. As an example once a High Commissioner from New Zealand to the UK, Phil Geoff, speaking at a public event in London, said, ‘President Trump has restored the bust of Churchill to the Oval Office. But do you think he really understands history? Moving on, he quoted Churchill’s remark of 1939 which was directed then at Chamberlain, the then serving prime minster, ‘you had the choice between war and dishonour, you chose dishonour, yet you will have war’. He was right away dismissed. If a politician had said something like this it would not have mattered. None would particularly bat an eye lid but diplomats saying such thing is akin to being sacrilegious.

The joint communiqués issued at the end of any summit meeting are also like statistics, revealing the obvious and concealing the vital. When the spokesperson says the meeting was held in a warm and friendly manner; it should be decoded as some cooperation, some agreement, but not totally satisfactory meeting. And if it is ‘free and frank’, it must be decoded as blunt, tough and intensely argumentative. Disagree ments were politely handled but clashes over issues remain static. And if the spokesperson says the meeting was ‘constructive’ it would mean no conclusions were reached. Each party restated their existing positions. If the spokesperson says the meeting was ‘useful’ it should be decoded to read only grievances and accusations were shared but no progress was made. And the most deadly of all is the remark ‘off the record’ because this itself is a deception. The coinage ‘off the record’ actually is an admission of putting everything on record!!

International politics demands that less said is always more. A complete restraint of sentiments and emotions is a prerequisite. At the press briefings of the foreign office, the White House, State Department, etc., we get to see and learn how to navigate an answer to a question asked without divulging anything or even getting close to answering the question. They say, what they don’t mean. They remain silent about what they actually mean. In the school of diplomacy the fine art of not answering any questions is the first lesson taught and imbibed.

We live in a world dominated by media that glares upon leaders with intrusive cameras every single day. There is nothing that isn’t captured on screens today. In a European capital recently at an underground station I counted the number of cameras with audio recording features exceeding 50. These videos can be harmful and useful depending on how the possessor wishes to use it. The dilemma of the ‘game of optics’ has gained traction for the worse with the misuse of AI tools.

As a nation we must learn to stop putting our foot in our mouth. This is done by both the leaders and the followers.

Copyright Business Recorder, 2026

For decades, Pakistan’s budget season has been a predictable exercise in firefighting. Dominated by short-term International Monetary Fund (IMF) stabilization mandates, arbitrary revenue grabbing, and bureaucratic manoeuvring, the official budget process has rarely left room for structural imagination. By launching a comprehensive framework that includes a shadow federal budget, alternative tax reforms, an independent economic survey, and a five-year development roadmap, the EPBD has successfully shifted the national narrative from what the state demands to what a productive, growth-oriented economy actually requires.

Yet, as the business community applauds these bold recommendations — which include a target of 8.5 percent GDP growth and scaling exports to $80 billion by 2031 — macroeconomists must evaluate this package through the cold lens of Pakistan’s historical boom-and-bust cycle. Can this supply-side blueprint truly break the economic trap? More importantly, how must the relationship between industrial incentives and agriculture be structured to prevent another foreign exchange crisis?

To appreciate the structural value of the proposals, one must first diagnose the recurring failure mechanism of the Pakistani economy. The domestic economic cycle has historically followed a painful, four-stage trajectory. This cycle is driven by a fundamental structural flaw. Pakistan’s growth models have traditionally been consumption-led rather than investment- or export-led. Whenever the state artificially stimulates the economy, domestic consumption rises, which immediately triggers a massive surge in imports. Because the country’s industrial sector relies heavily on foreign raw materials, intermediate goods, and energy inputs, a higher GDP growth rate expands the current account deficit. Eventually, foreign exchange reserves drop to critical levels, forcing the government to seek an IMF bailout. To stabilize the currency, the State Bank of Pakistan (SBP) slants toward monetary tightening, raising interest rates and imposing taxes that choke off industrial production. Growth grinds to a halt, and the recessionary cycle resets.

The shadow budget represents a sophisticated attempt to shatter this cycle. Rather than accepting an IMF-mandated low-growth equilibrium as a permanent destiny, the framework seeks to engineer a supply-side pivot toward long-term productivity.

The core diagnosis of the shadow budget is that Pakistan’s current tax architecture has become extractive and punitive toward documented, compliant industries. By forcing corporate sectors and salaried individuals to shoulder an unfair share of the fiscal burden, current policies incentivize informal economic activity and trigger capital flight.

The proposals address these distortions through explicit measures. The framework calls for a reduction in the corporate tax rate from 29 percent to 25 percent, the rollback of the super tax across non-banking sectors, and the total elimination of withholding taxes on inter-corporate dividends. These steps are designed to lower the cost of doing business and restore private-sector competitiveness.

Recognizing the severe erosion of purchasing power, the document recommends lowering the maximum tax rate for salaried individuals from 35 percent to 20 percent, estimating a cumulative relief of Rs 390 billion that would inject healthy, documented demand back into the domestic market.

The shadow budget proposes reducing the General Sales Tax (GST) from 18 percent to 15 percent over a three-year horizon. Crucially, this cut is revenue-neutral; it is funded not by squeezing existing filers, but by expanding the tax net to bring retailers, merchants, and vendors into the formal net, aiming to scale the taxpayer base from 3 million to an ambitious target.

The blueprint demands the complete elimination of the “non-filer” status. In Pakistan’s fiscal history, this category has functioned as a legalized premium, allowing affluent individuals to avoid documentation by merely paying a slightly higher transaction fee.

Additionally, the focus on unlocking the estimated Rs 5.7 trillion currently tied up in tax litigation addresses a severe drain on corporate cash flows. By proposing time-bound judicial resolutions and strengthening Alternative Dispute Resolution (ADR) mechanisms, the framework aims to return liquidity to the private sector at a time when commercial credit penetration remains constrained.

A key pillar of the reform package is the demand to restore tax incentives for 100 percent equity-based industrial investment under Section 65 of the Income Tax Ordinance (ITO), 2001. Historically, sub-sections like 65B (for Balancing, Modernization, and Replacement - BMR), 65D, and 65E were the state’s most effective tools to encourage industrial capitalization without forcing businesses to rely on high-interest bank debt.

While reintroducing Section 65 would successfully direct private wealth away from speculative real estate plots and back onto the factory floor, macroeconomic purists raise a valid question: Will this industrial stimulus not lead to another import-driven bust?

The risk is real. Because Pakistan lacks a domestic heavy-engineering sector, it does not manufacture high-tech textile looms, automated assembly lines, or specialized chemical reactors — it imports them. When Section 65 incentives are activated without guardrails, a massive wave of capital goods orders hits the balance of payments. Fifty major industrial units importing machinery simultaneously can cause a sudden import spike long before those new production lines generate their first dollar of export revenue. If external reserves are low, this temporary investment lag can accidentally trigger the next balance of payments crisis.

To prevent Section 65 from becoming an inadvertent trigger for a bust, the policy must be paired with clear conditionalities.

Tax credits should not be granted indiscriminately. An industrial unit importing machinery to serve the domestic market should receive different treatment than one geared toward global markets. The credit must be linked to a mandate requiring the undertaking to export a minimum percentage of its additional output within 24 months.

The SBP and the Federal Board of Revenue (FBR) must manage the pace of capital imports, linking the volume of active BMR tax credits directly to the country’s foreign exchange reserve cover.

The incentive should explicitly reward businesses that invest in manufacturing intermediate components and engineering tools domestically, healing the import-dependence problem at its source.

Given the import risks associated with rapid heavy industrialization, a compelling question arises: Can Pakistan avoid the boom-and-bust cycle entirely if it prioritizes investment in the agricultural sector before the industrial one?

The argument for an agriculture-first model is simple: agriculture is inherently less import-intensive. You do not need large amounts of foreign raw materials to grow wheat, rice, or sugarcane. However, traditional economic history shows that prioritizing agriculture instead of industry will not save Pakistan from the cycle. A pure, raw agricultural model remains trapped by low profit margins, a severe yield gap compared to regional peers, and extreme vulnerability to climate shocks — as seen during the devastating floods of 2022 when crop failures forced billions of dollars in emergency food imports.

The true solution to the boom-and-bust trap does not lie in choosing agriculture then industry; it lies in the immediate implementation of a vertically integrated Agri-Industrial hybrid model. Pakistan must industrialize its agricultural output to solve its largest economic vulnerability: import-dependent raw materials and low-value exports.

This integrated approach flattens the boom-and-bust cycle through two primary strategic channels:

1. Strategic Import Substitution

Pakistan annually spends billions of dollars of foreign exchange importing commodities it has the natural potential to cultivate, including edible oil seeds, raw cotton, and dairy inputs. By directing investment into advanced seed genetics, corporate farming models, and local processing facilities, the country can substitute these imports with domestic production.

2. High-Value Agro-Processing Exports

The global market for processed foods, packaged meats, and textiles is worth trillions of dollars. Instead of exporting raw cotton or primary crops at low margins, investing in industrial cold chains, modern packaging, and automated textile processing allows Pakistan to export high-value, shelf-stable products. Because the entire supply chain — from seed to finished consumer product — is based domestically, the resulting export growth does not trigger a corresponding import bill. This effectively unties economic expansion from the traditional current account crisis.

The EPBD think tank’s shadow budget represents a welcome shift from reactive firefighting to performance-based, private-sector-led economic planning. It provides a visible blueprint showing that a home grown path to a zero fiscal deficit is achievable without shutting down the nation’s industrial engine.

However, for this alternative framework to succeed, it must move past hotel launch events and enter the halls of formal policymaking. The National Assembly’s Standing Committee on Finance should debate these shadow documents side-by-side with the official federal budget.

Ultimately, breaking the historical boom-and-bust cycle requires absolute policy certainty. If the tax rationalizations, Section 65 investment incentives, and agri-industrial strategies outlined by the EPBD are to inspire investor confidence, they cannot remain vulnerable to shifting political tides. They must be legally protected and sustained across administrations, establishing a stable baseline where business growth is treated as the primary vehicle for national revenue generation and long-term economic stability.

Copyright Business Recorder, 2026

Yet every year, when the budget arrives, the easiest taxes to raise are still the taxes paid most painfully by ordinary people: petroleum levies, sales tax, excise duties, utility-based taxes, withholding taxes and customs duties that enter prices before the poor even realise they have paid them.

A budget should not be judged by the sympathy in the Finance Minister’s speech. It should be judged by who pays after the speech is over.

Fuel taxes, import duties, utility levies, sales tax and withholding taxes are usually passed into prices. A well-designed income tax, on the other hand, is different: it is linked to ability to pay and does not directly raise the price of petrol, electricity or daily goods. That is why the debate should not only be about how much revenue is collected. It should also be about where the money comes from.

This matters because poverty is no longer an abstract issue. The World Bank has warned that poverty has risen after repeated shocks, including COVID-19, floods, inflation, and macroeconomic stress. Even those not officially counted as poor are struggling to protect their standard of living.

The middle class has become the silent victim of this adjustment. Its real income has been squeezed for years, but tax policy still treats many low-income salaried households as if they have surplus income. The basic exemption should not be treated as a political concession. It should be linked to the cost of basic living. PBS household data suggests that middle-income Pakistani households spend roughly Rs63,000 to Rs77,000 per month (PBS HIES 2024–25, urban households), while the current exemption threshold is only Rs50,000 per month. Taxing income below the basic cost of living is not progressive taxation. It is taxing survival.

The biggest test, however, remains the informal and politically powerful economy. Visible taxpayers such as salaried people and formal businesses are easy to squeeze because their income is documented. Retailers, wholesellers, service providers and many others in the informal economy remain much harder to tax, not only because of weak documentation but also because of political influence.

In my experience, I have never seen a budget where even “well intended” and sincere proposals are not reversed between the budget announcement and the passage of the finance bill. A fixed tax on retailers was announced a few years ago but was quickly withdrawn after trader pressure. That episode showed the real political economy of taxation in Pakistan: it is easy to tax salaries, fuel and formal businesses, but difficult to tax organised commercial lobbies. Making an announcement in the budget is one thing. Having the courage to keep it in the Finance Bill is another.

Wholesale and retail trade accounts for nearly a fifth of Pakistan’s economy but contributes a fraction of direct tax revenue. The salaried class, by contrast, has no lobby and no strike threat.

To be fair, informality is not sustained only by greed or political protection. It is also sustained by fear of the tax system itself. Many small businesses avoid the formal net because our tax laws are complicated, discretionary and often heavy-handed, and they fear that entering the system will expose them to arbitrary notices and penalties.

This is where the coming budget should be tested. There may be a case for rationalising excessive taxes on formal businesses if the purpose is investment, jobs, and documentation. But relief at the top without relief at the bottom is not reform. It is preference. If the state can consider easing the super tax, it can also consider raising the basic exemption for low-income earners.

Pensions, official perks and protected benefits are no different. Pensions are not taxed until they exceed Rs10 million a year — roughly Rs833,000 a month — and even then, only at 5 percent on the excess. If fuel, electricity and daily-use goods can be taxed heavily, very high pensions and official benefits cannot be treated so gently. A state that taxes survival but protects privilege cannot honestly call itself pro-poor.

This is why the budget should not be judged by its revenue total alone. If the budget raises petroleum levies, expands sales tax, moves more goods into the Third Schedule, increases withholding taxes, and leaves protected incomes untouched, then it cannot be called a people’s budget, no matter how many times the word “poor” is used in the speech.

When the budget is announced, ignore the slogans and ask four questions:

First, does it reduce reliance on fuel, GST, utility, and withholding taxes — or increase them?

Second, does it raise the basic exemption or protect low-income salaried people — or only give relief where lobbying is stronger?

Third, does it bring retailers, wholesalers, real estate gains, large agricultural incomes, high pensions and elite benefits into a meaningful tax net — or merely protect those who have influence?

Fourth, do the difficult measures survive until the Finance Bill is passed — or are they diluted once organised lobbies push back?

That is the real test. A people’s budget is not one that speaks warmly about the poor. It is one that stops raising money from those who cannot avoid paying and starts collecting from those who can afford to pay. The Finance Minister knows exactly where the untaxed money is. Budget day will tell us whether he has the courage — or the freedom — to go and get it.

Copyright Business Recorder, 2026

“Don’t mind her, she gave the same lecture in China, and they put her on a bus showed her and her boss Ursula von der Leyen Beijing and the next day the bus took them to the airport.”

“A bus is violative of protocol….”

“Two observations: remember what our wise Prime Minister once said: beggars can’t be choosers. And second the defeated Hungarian Orban could not get access to EU funds, but the new man in has got them — so much for democracy, and there is some veiled or shall we say not so veiled intervention in Georgia and Armenia and….”

“Hey size matters doesn’t it!? The EU is expanding…”

“All around Russia and the Ukraine example surely should be a lesson learned.”

“Well apparently not. By the way did our leadership question EU support for human rights violations in Israel?”

“We are a friendly people, we believe in diplomacy and….”

“I thought she was EU’s top diplomat.”

“Our top diplomat is Ishaq Dar and…..”

“Wait, wait, wait – are you distinguishing between an appointment and the actual power behind…”

“Behind that appointment was Nawaz Sharif….”

“The same guy who sought permission before going to Azad Jammu Kashmir to canvass for his party?”

“Yep the same guy, anyway is Dar the actual top diplomat or is he the frontman….”

“Please be respectful, you know, and I know that he holds a much higher portfolio — that of the Deputy Prime Minister and there is only one man in this country who can beat that.”

“Ah the man who is in the twin city….”

“Stop it right now.”

“Oh I get it, the man who The Rana said could have become the prime minister had he wanted to?”

“You are being facetious at your own cost.”

“I apologize profusely anyway did you hear the US conspiracy theorists are saying that Dar sahib met with Rubio to tell him that Iran has got hold of some nuclear weapon from somewhere – and they will demonstrate, not attack, demonstrate those….”

“Ah so that explains why President Trump reportedly yelled at Netanyahu to stop killing Lebanese and Gazans and West Bank Palestinians, as per Axios the news source that is impeccable where the President is concerned.”

“For your information that’s not human rights violations by Israel as far as US and EU and……”

“Did our prime Minister advise the EU diplomat to reset foreign policy – right now they are at odds with all three of the global superpowers – Russia they hate, China they challenge on human rights and then there is the US that denigrates them at every fora….”

“Who said life is easy!”

Copyright Business Recorder, 2026

The long-term trend in total tax revenues as a percent of the GDP has been U-shaped. Tax revenues include the revenue from the petroleum levy, which emerged from the withdrawal of the sales tax in 2022-23. The federal government classifies it as a non-tax revenue, but the IMF also treats it as a tax.

The likely estimate of the total tax-to-GDP ratio in 2025-26 is 12.6 percent. This ratio rose sharply in 2024-25 to 12.2 percent of the GDP in 2024-25. The tax-to-GDP ratio stood at a low of 7.1 percent of the GDP in 2003-04. Considerable progress has been made since then.

The taxation system is imbalanced between the federal and provincial levels. Federal tax revenues constitute over 92 percent of the total national level of tax revenues. The extremely low share of 8 percent of the provincial tax revenues is despite the presence since 2015-16 of a potentially large tax, the sales tax on services. India is also a federation, with almost 30 percent of the national tax revenues collected by the States.

There has been another major improvement in the tax system of Pakistan in the form of a big increase in the share of direct taxes. In the early 90s, the share was only 20 percent of the share of direct taxes. The share now stands at almost 45 percent. This has led to a more progressive tax system in the country. Withholding taxes are currently yielding almost 60 percent of the income tax revenues.

Within indirect taxes at the federal level, the major share is of the combined collection from the sales tax and the petroleum levy of over 71 percent. The importance and contribution of the customs duty and excise duty has diminished sharply over the years. Their combined contribution currently is 1.7 percent of the GDP.

A comparison can be made of the overall tax-to-GDP ratio of Pakistan with that of some Asian countries. At 12.2 percent of the GDP in 2024-25, it is significantly higher than the ratio in Bangladesh and Sri Lanka. However, it is lower than the tax-to-GDP ratio of India, Malaysia and Thailand, which ranges from 14 percent to 18 percent of the GDP. Pakistan still has a considerable amount of ‘catching up’ to do.

There is perhaps a surprising finding that the sales tax rate at the federal level is relatively high in Pakistan at 18 percent and at the middle level in import tariffs, with an average of 9.9 percent.

The important comparison is with respect to income tax rates. The corporate income tax in Pakistan at 29 percent is in the middle of the range from 20 percent to 35 percent in other Asian countries. However, the highest personal income tax rate at 35 percent is somewhat on the higher side. For example, it is 25 percent in Bangladesh and 30 percent in India.

Various approaches have been adopted to determine the potential tax-to-GDP ratio of Pakistan. A ‘representative tax system’ approach using economic indicators of potential tax revenues in a sample of Asian countries reveals that despite the increase in 2024-25, the actual tax-to-GDP ratio is lower than the potential ratio by almost 3 percent of the GDP. In other words, the target should be attainment of a tax-to-GDP ratio of at least 15 percent of the GDP.

This leads to the quantification of the revenue potential in individual taxes by adoption of the ‘bottom up’ approach to estimation of the ‘tax gap’. For example, revenues of the personal income tax could be more than twice the actual level, while sales tax revenues could be higher by 25 percent.

There is, in fact, a huge ‘tax gap’ in provincial taxes. The ‘tax gap’ in the agricultural income tax in 2023-24 has been estimated at Rs 880 billion, while the actual revenues are only Rs 10 billion. Similarly, the ‘tax gap’ in the sales tax on services is close to Rs 650 billion. Therefore, the real challenge is the adequate development of the provincial tax system in Pakistan.

There is also a large gap in property-related tax revenues. There are five taxes at the federal and provincial levels on property in Pakistan. However, the actual revenue is less than 0.3 percent of the GDP, when the potential revenue could be significantly higher at over 0.8 percent of the GDP.

Turning to an important issue of who bears the burden of taxes in Pakistan, there is the need to appreciate the rise in progressivity mentioned earlier due to the substantial increase in direct taxes share of revenues. However, the big enhancement in the petroleum levy has significantly added to the regressive nature of the tax system.

Overall, research on incidence of taxes by income quintile in Pakistan reveals that the tax system remains ‘mildly regressive’. International comparisons reveal that the tax system of Pakistan is more progressive than the tax systems of Bangladesh and Sri Lanka, but more regressive than Indonesia’s, India’s and Malaysia’s.

There is also a big variation in the incidence of taxes of taxes among sectors of the economy, as measured by the total tax collection from different taxes as percentage of value-added. The incidence by sector is given in Table 1.

A review of the regime of the fiscal incentives in different countries reveals that successful incentives include the following:

• Tax holiday on investment in many countries

• Higher exchange rate on exports and tax exemption in Bangladesh

• Cost of energy inputs to be taken as more than the actual amount for computation of profits in Thailand

• Investment allowance or tax exemption on specific capital investments in India.

Overall, the above description of the tax system in Pakistan and in other countries has provided insights for the following tax reforms and development of the tax system in Pakistan:

• Top priority to development of provincial taxes like the sales tax on services, agricultural income tax and property-related taxes.

• Target for increasing the overall tax-to-GDP by 1 percent of the GDP each year from 2026-27 to 2027-28 to take the ratio to above 15 percent of the GDP.

• Rationalization of the structure of the personal income tax and reduction in rates of the petroleum levy.

• Targeting a reduction in the overall tax burden on sectors like large-scale manufacturing, banking and insurance, and construction, while simultaneously raising collection from agriculture, wholesale and retail trade and real estate.

• Establish of a regime of fiscal incentives to promote investment and exports.

Copyright Business Recorder, 2026

The underlying reason may not be just Trumpian idiosyncrasies but in fact the failure of the US-Israel combine to achieve any of the declared (or undeclared) objectives of the war, chief amongst these being regime change.

Naturally, this fills the Iranian people with pride for having held off the mightiest military power in the world (the US) and the most aggressive (Israel) and salvaged its honour and respect in the eyes of the world.

On May 31, 2026, Trump once again proposed more changes to what he called a “largely negotiated” agreement, ostensibly to “toughen” the deal, leading to Iran’s parliamentary speaker and lead negotiator Bagher Ghalibaf responding with a statement that Tehran does not trust Washington and demanding tangible outcomes instead of “words and promises”. Speaking at a virtual session of the Islamic Consultative Assembly, he said: “There is no trust in the enemy’s words and promises. Our only criterion is to achieve tangible results before we fulfil our commitments in return.” He went on to reiterate that Iran will not approve any agreement until it is sure that the decision protected the rights of the Iranian people.

CNN reported that the president insisted on “tougher language surrounding Iran’s nuclear commitments (Iran has consistently, for decades, reaffirmed it does not contemplate making nuclear weapons) and its pledge to reopen the Straits of Hormuz” (Iran envisages a temporary toll on shipping through the Straits pending the lifting of the US embargo on its ports and the fulfilment of its demand for war reparations).

While Trump’s buffoonery on Iran continues, Israel appears to have been given a free hand to continue its aggression into, and capture of, southern Lebanese territory as part of its anti-Hezbollah campaign. It bears recalling that Iran has insisted Israel’s aggression in Lebanon must cease as part of any solution of the Iran war.

Killings of Palestinians in the West Bank and Gaza and provocations by Israeli settlers at Al-Aqsa all form part of the by now familiar Israeli expansionist habit. Prime Minister Benjamin Netanyahu has given the Israeli military instructions to expand Israel’s control over 60 percent of Gaza to 70 percent. So much for the Gaza ceasefire. Meanwhile, Trump’s much trumpeted Board of Peace for Gaza, which was touted as the instrument for turning Gaza into a Mediterranean Rivera, boasts of an empty kitty. Outlandish schemes by Trump, which later wither on the vine, are the hallmark of his crazy presidency.

In the process of the constant roiling by Trump, the world is left reeling at the destabilisation of oil flows and the global economy as a whole. Even the American public is paying for the inflationary effects of Trump’s mad adventure.

Israel’s seizure of a historic castle, Beaufort or Qalaat al-Chakif, in southern Lebanon is a repeat of its aggression against the country in 2000. France now feels that an emergency meeting of the United Nations Security Council is called for. Condemnation of Israel’s advance and capture of the castle by Arab regimes remains so much hot air, without any tangible effect. None of this is likely to stay Israel’s bloody hand. It is disappointing that despite stirrings of protest earlier against Israel’s aggressive expansionism, it all seems to have ended in a whimper.

The world needs a campaign against Israeli expansionism at the expense of the benighted Palestinians and now their Lebanese brothers-in-arms and US aggression against Iran on the lines of the past glorious solidarity campaigns against the Vietnam War and South African apartheid. Or, has internationalist solidarity too had its day?

Copyright Business Recorder, 2026

In a country starved of investment and desperate for deeper capital markets, that is a self-inflicted wound.

The issue is simple in concept but serious in its consequences. A subsidiary earns profits and pays corporate tax. It then distributes part of those after-tax profits to its parent company, where dividend tax is imposed.

When the parent later passes that income on to shareholders, there may be yet another dividend levy. Thus, the same stream of earnings is taxed repeatedly before it reaches its final destination. This raises the cost of moving capital to where it is most useful, discourages internal allocation of resources and turns the tax system into an obstacle to investment rather than a neutral collector of revenue.

In practice, it penalises groups that want to reinvest profits efficiently across businesses, even when that reinvestment would support growth, jobs and productivity.

That is why the tax relief for inter-corporate dividends introduced in 2007, and which remained in force for nine years, made economic sense.

When holding companies can receive dividends from subsidiaries without another tax bite, they can channel capital into expansion, acquisitions and new ventures with less friction. This is not a loophole; it is recognition that the underlying profits have already been taxed at the operating-company level.

Pakistan does not merely need more investment; it needs larger, better-governed businesses, deeper pools of patient capital and broader public participation in growth. Most mature tax systems recognise this principle in one form or another: income should not be taxed repeatedly inside the same corporate chain before it reaches the ultimate owner.

Yet in Pakistan this sensible treatment was withdrawn, restored and then withdrawn again, leaving policy uncertain and investors guessing. That stop-start approach carries a cost of its own.

Businesses make long-term decisions about structure, listing, financing and expansion. If tax treatment changes unpredictably, firms become more conservative, groups hold excess cash, and potentially productive investment is delayed.

The case for reform, however, cannot be made in a vacuum. Critics worry that a blanket concession for intra-group dividends could concentrate economic power in a few hands without broadening public participation or improving governance.

In an economy where ownership is often narrow and capital markets remain shallow, any tax preference that simply reinforces closed corporate pyramids would be hard to defend.

However, real that concern may be, it does not justify bad tax policy. Distortionary taxation is a poor substitute for competition policy, securities regulation and disclosure rules. If the state wants more competition, more transparency and more participation by outside investors, it should design rules to achieve those aims directly rather than taxing the same income again and again and hoping for a better result.

Good policy should separate two questions that are often muddled together: whether inter-corporate dividends should be neutral within a group, and under what conditions a group should qualify for that neutrality.

The sensible course is therefore not a blanket giveaway, but a carefully targeted restoration of tax neutrality for eligible corporate groups under strict conditions. If a parent company is to receive dividends from a subsidiary without another layer of tax, both entities should be listed and both should maintain a meaningful free float in the hands of independent public investors.

The thresholds should be clear, measurable and difficult to manipulate. Related-party holdings should not be counted toward public float, disclosure should be robust, and any structure created merely to game the rules should be disqualified outright.

Regulators could also require a minimum holding period and full transparency on intra-group flows so that the concession supports genuine capital allocation rather than short-term tax arbitrage. Such an approach would align the tax benefit with broader policy goals: firms that accept market discipline, publish better information, and share ownership more widely would receive neutral tax treatment on internal dividend flows. Reform, if it is to endure, must come with guardrails.

Pakistan should not make it harder for businesses to deploy capital efficiently at a time when investment is scarce, confidence is fragile and formal markets need to deepen rather than shrink. Nor should it grant tax concessions without asking what the public receives in return.

The right answer is a conditional exemption for intra-group dividends, one that rewards listing, strengthens public ownership, improves disclosure and deepens market discipline.

Properly designed, such a reform would do more than remove a technical flaw in the tax code and align it with global practice. It would encourage firms to organise capital more efficiently, support expansion into productive sectors and create stronger incentives for businesses to come to the market rather than remain private and opaque. This may seem a narrow matter of tax law, but it speaks to a larger choice about the kind of economy Pakistan wants to build.

A country that needs investment should not tax reinvestment into submission, and a state that wants broader, more transparent capitalism should use the tax code to encourage that outcome, not frustrate it.

Copyright Business Recorder, 2026

The fourth and fifth articles will examine Pakistan’s privatisation history and how the process can be made more effective.

Pakistan has now spent over two years building a governance framework for its state-owned enterprises and beginning — haltingly — to enforce it.

Both efforts are necessary. Neither is sufficient.

The honest conclusion of any serious analysis of Pakistan’s SOE sector is this: the state should not be running most of these enterprises at all.

This is not an ideological position. It is a governance conclusion.

The structural problem reform cannot fix

Pakistan has 117 federal SOEs, including 84 commercial entities. Their total assets are approximately Rs. 38 trillion — nearly one-third of GDP. Their revenues are Rs. 12.4 trillion, roughly 11 percent of GDP. Yet the portfolio recorded a net adjusted loss of Rs. 123 billion in FY2025 — a deterioration of over 300 percent in a single year. Fiscal support rose 37 percent to Rs. 2.08 trillion. At that rate, Pakistan transfers approximately Rs. 5.7 billion to its SOE portfolio every day.

These numbers do not describe temporary under-performance. They describe a structural ownership problem.

Governance reform can reduce the damage. Stronger accountability can improve performance. Better boards can impose discipline. But none of these can fully overcome the central weakness of state ownership: failure does not carry sufficient consequences.

In a government-owned enterprise, directors are appointed through political processes and rarely bear personal cost when the entity fails. Management operates without the discipline of market competition or the credible threat of insolvency. Capital allocation is often shaped by political priorities rather than commercial logic. Losses are absorbed by the public budget — invisibly, incrementally, and without limit.

No board composition requirement, no business plan mandates, no monitoring unit, and no consequence ladder can fully compensate for the absence of private ownership discipline.

Governance reform can make state ownership less bad. It cannot make state ownership good.

The case for privatisation — and its limits

Pakistan’s SOE Policy 2023 rightly makes privatisation the default outcome for commercial SOEs that are neither genuinely strategic nor essential public services. That is the correct policy position. The problem is that it remains more position than programme.

The case for privatisation rests on three pillars.

The first is fiscal. Every rupee used to support an underperforming SOE is a rupee unavailable for schools, hospitals, debt reduction, or social protection. Providing over Rs. 2 trillion in annual fiscal support — year after year, for decades — to a chronically loss-making portfolio is not a sustainable policy choice. It is a crisis that deepens every day it continues.

The second is governance. Private ownership creates what public ownership struggles to manufacture: real skin in the game. Private owners gain when an enterprise performs and bear the cost when it fails. They have stronger incentives to appoint competent management, improve efficiency, protect capital, and resist waste.

The third is economic. SOEs that dominate commercial sectors crowd out private investment, suppress competition, and reduce productivity. Privatisation is therefore not only about fixing SOEs. It is about creating space for a more competitive economy.

The approach to privatisation must also be realistic. It is not the answer for every SOE. Entities performing genuinely essential public functions, natural monopoly infrastructure, or services that private capital will not provide may require continued public ownership or strong regulation. The SOE Policy’s classification framework — strategic and essential — must be applied rigorously. Parking every difficult entity in the “strategic” category to avoid hard decisions is not classification. It is evasion.

Privatisation is also not a substitute for regulation. Transferring ownership without adequate regulatory capacity can turn public monopolies into private ones. Ownership reform and regulatory reform must move together. Nor can privatisation ignore people — labour transitions, retraining, and voluntary separation must be handled responsibly. Protecting workers, however, cannot mean preserving loss-making enterprises indefinitely.

One transaction is not a programme

Here is the most uncomfortable fact in the reform story.

In over two years of a government that has declared privatisation a strategic priority — under sustained IMF programme pressure — Pakistan has completed only one major commercial privatisation: PIA, whose transfer process is still being finalized. In December 2025, a consortium led by Arif Habib Corporation acquired a 75 percent stake for Rs. 135 billion, exceeding the government’s minimum reference price and marking a genuine breakthrough after decades of failed attempts. That achievement deserves credit. But it also proves how hard the process is — requiring repeated failed auction attempts, extensive debt restructuring, and a redesigned transaction structure before investors engaged seriously.

One transaction in two years is not enough — especially when the remaining entities in the 2024-29 programme are mostly in early stages and the portfolio continues to impose a heavy fiscal cost every day.

There is also a tendency in Pakistan’s policy debate to treat governance reform and privatisation as sequential alternatives: first reform the SOE, then consider privatisation if reform fails. This misunderstands the relationship between the two. Governance reform without privatisation remains a permanent burden on the state — one that every new government can reverse. Privatisation with governance reform is different. It transfers the ongoing management burden to private owners with structural incentives to carry it, converts a recurring fiscal obligation into a transaction challenge, and frees the state to focus on functions it is genuinely better placed to perform: education, health, regulation, infrastructure, and social protection.

The governance framework examined in the first article and the consequence mechanisms demanded in the second are both necessary. But they are means, not ends. For Pakistan’s commercial SOE portfolio, the end must be a state that owns less, governs better, and deploys its limited capacity where markets cannot serve the public interest.

What matters now is not the quality of legislation or the success of a single transaction. What matters is whether Pakistan can build a sustained privatisation programme that reduces the state’s commercial footprint, returns fiscal resources to productive use, and creates a genuinely competitive economy — one that delivers better services, better jobs, and better fiscal outcomes for its people.

Not privatisation as ideology. Not privatisation as a slogan to satisfy creditors. Not privatisation announced loudly and abandoned quietly.

Privatisation as a deliberate, sequenced, and well-prepared programme — because private ownership creates the accountability, discipline, and incentives that the SOE governance framework alone cannot.

The state cannot govern its way out of a structural ownership problem.

It must solve that problem by owning less.

Copyright Business Recorder, 2026

The problem is that Pakistan’s cigarette market is no longer neat. A growing share of consumption now sits outside the documented economy, beyond tax stamps, lawful pricing, and serious retail discipline.

Another tax hike on legal cigarettes is therefore not a fiscal strategy. It is a wager that consumers will stop buying rather than shift to cheaper illegal brands. Pakistan’s recent experience suggests the opposite.

The turning point came in February 2023, when the government raised Federal Excise Duty on cigarettes through the emergency mini-budget. Public summaries show that the upper-tier FED rose to Rs. 16,500 per 1,000 sticks, while the two-tier structure remained in place. The Finance Act 2024 then left the main rates unchanged, while adjusting the lower-tier threshold. The debate stayed focused on the legal, taxed industry while illegal cigarettes moved deeper into retail markets.

If the tax-hike theory worked cleanly, the state should have seen a stable or rising legal tax base after such a major increase. Instead, business reporting based on FBR data has shown stress in cigarette FED collection and a shrinking contribution from cigarettes within total FED. The message is blunt: when legal prices rise, and illegal packs remain available at lower prices, the market does not disappear. It migrates.

This is the point many local NGOs avoid. Their statements speak about “the tobacco industry” as if Pakistan has one unified market. It does not. The legal cigarette market pays excise and sales taxes, follows packaging rules, and operates under Track and Trace. The illegal market pays little or nothing, ignores legal warnings and price floors, and uses the price gap as its business model. Treating both as one industry produces bad policy because it punishes the side that the state can already tax.

Industry and enforcement-linked estimates place Pakistan’s cigarette market at slightly above 80 billion sticks annually. Several assessments suggest more than half may now be outside the tax net. If nearly 43 billion sticks escape proper duty, the annual tax loss crosses USD 1 billion. The scale of that illegal trade is likely much larger, as unpaid duties support transporters, wholesalers, retailers, financiers, and protection networks. This is not a technical wrinkle. It is the main event.

The strongest counterargument from tax activists is that Pakistan must follow global best practices and meet international public-health commitments. That argument deserves attention, but it cannot be applied blindly. The United States signed the WHO Framework Convention on Tobacco Control but did not ratify it. Switzerland, where the WHO is headquartered, also signed but has not ratified it. Pakistan should ask why donor-backed networks and local advocacy groups press it yearly to reshape fiscal policy around a treaty architecture that some powerful countries have not accepted.

That does not mean Pakistan should ignore health concerns. It means Pakistan should not outsource fiscal policy to campaign templates written for markets that do not resemble Pakistan. Where enforcement remains uneven, raising taxes on legal cigarettes before crushing illegal supply can weaken both revenue and health objectives. It can push smokers toward cheaper products that the state neither taxes nor regulates.

Australia offers a warning. It has some of the world’s highest tobacco taxes and a far stronger enforcement state than Pakistan. Yet official and criminal-intelligence reporting shows illegal tobacco has become a major revenue and crime problem. The Guardian reported that Australia’s illegal tobacco trade cost the federal government about AUSD 3.3 billion in lost revenue in 2023-24. High legal prices helped create a massive gap between legal and illegal packs. Even a high-capacity state is discovering that criminals can capture price gaps.

Canada’s history also matters. In the early 1990s, tobacco smuggling became so serious that the federal government announced dramatic excise reductions in 1994 to combat contraband trade. That episode does not prove that low taxes are desirable. It proves something more practical: when tax policy outruns enforcement reality, illegal networks can force policy reversal.

The government’s first job is not to raise legal cigarette taxes again. Its first job is to make the illegal cigarette business risky, unstable, and unprofitable. That requires full Track and Trace enforcement, retail inspections, action against non-tax-paid brands, prosecution of illegal manufacturers, control over raw material leakages, and tighter border and wholesale monitoring. Customs, Inland Revenue, provincial administrations, and police must work as one system.

Only after the state restores control over the market can it discuss tax changes with credibility. Until then, higher FED will widen the price gap that illegal operators exploit. It will squeeze legal companies, reduce documented sales, and make the government dependent on a shrinking compliant base.

Pakistan needs more revenue, not more slogans. It needs fewer illegal cigarettes, not only costlier legal ones. The easy line is that higher taxes mean higher income. In Pakistan’s cigarette market, that line is becoming a bad joke. More taxes will not mean more income if the income walks out through the back door of the illegal market.

Copyright Business Recorder, 2026

“Yes we remain the main go-between with respect to US and Iran; and the entire world acknowledges our services….”

“I wasn’t actually talking about the US Iran meditation.”

“We are very close to China and…”

“Nope not that element either.”

“Hmmmm.”

“Give up?”

“OK then go ahead tell me what’s in your mind?”

“Kaja Kallas the European Union (EU) top diplomat….why are you laughing?”

“Well the EU top diplomat hates Russia and is fully on board with the twenty-second or third or whatever sanctions package against Russia….”

“Indeed though with severe fuel shortages in Europe especially after the Nord Stream pipeline was blown up which used to deliver cheap Russian gas — the main reason cited for the de-industrialisation of Germany and need I add, to achieve this state, German governments have had to work very hard, and are continuing to work very hard to sabotage their own industries….”

“Did you know the Estonians, where Ms Kallas is from, shut off cheap electricity from Russia for Estonians and are now on the grid for the much more expensive energy from the EU….”

“See the Europeans know how far to go with hatred. I hope she gets to meet up with our cabinet members – you know to understand which policies can derail industrialisation….”

“Our cabinet does not need any help with that thank you.”

“Sorry anyway so the EU is now allowing Russian gas with the continuing Middle East crisis but with the cap of 60 dollars per barrel set earlier and now Russia has said no that is not the market rate anymore….”

“Right anyway Ms Kallas has also angered our Chinese friends because of sanctions and China has warned it will retaliate and need I add China is in a much better economic situation and…”

“None of these countries matter to Ms Kallas or the EU leadership. What about Rubio? Did Ms Kallas finally get to meet Rubio?”

“No not yet and need I add Rubio has met with our foreign minister a few times.”

“Ah so you reckon she wants Dar Sahib to intercede with Rubio to grant her an audience?”

“That would be nice and the quid pro quo – she will intercede on our behalf for the extension of the GSP plus status.”

“Great.”

Copyright Business Recorder, 2026

The budget, expected to be announced this Friday, will, therefore, have few surprises for two reasons: (i) the third review of the Extended Fund Facility (EFF) and the second review of the Resilience and Sustainability Facility (RSF) documents were uploaded on the Fund website on 15 May – two days after the arrival of the mission to review the budget – detailing time-bound conditions and structural benchmarks agreed with the authorities till the next mandatory quarterly review scheduled for 15 September. The envisaged disbursement subject to reaching a staff level agreement is 760 million SDRs under the EFF and 76.9 million SDRs under the RSF; and (ii) budget formulators typically disclaim responsibility for almost 75 to 80 percent of the budgeted allocations on the grounds that they are taken by the elite/influentials and, when the country is on a Fund programme, by the IMF.

The annual raise in total budgeted outlay is premised on a very optimistic projection of the Gross Domestic Product (GDP) growth rate. Post-Covid 19, with the exception of 2021-22, the growth rate has been well below projections and, given that the country has been on a rigid upfront IMF programme since 2019, this has implied slashing the Public Sector Development Programme (PSDP) to meet the deficit targets agreed with the Fund. Sadly, this has been the practice during nearly all the Fund programmes, Pakistan is currently on the twenty-fourth programme, yet, over time as was to be expected, the PSDP actual disbursement has been shrinking in terms of the percentage budgeted allocation – the July-April 2026 rate is at a low of 51 percent.

The misalignment between the PSDP authorisations (by the Planning Ministry) and the actual disbursement (by the Finance Ministry) may indicate: (i) the Planning Ministry distancing itself from the lower disbursements than budgeted (though it is the Ministry’s responsibility to present more realistic allocations, given the shrinking fiscal space); and/or (ii) it may be an attempt to showcase the failure of the Finance Ministry to fund development and instead to continue to prioritise the outlay for current expenditure.

The focus has remained on ensuring that the current expenditure requirements are met.

The major component of this is the mark-up on loans budgeted at a little over 50 percent of the total current expenditure in 2025-26 – an outlay which, if not released, would have serious economic consequences. This is lower than what was realised in 2024-25 – at 54.5 percent – though it was budgeted at 56.8 percent of total current expenditure with the difference in total terms being 813 billion rupees.

The lower outlay for mark-up this year was not due to lower envisaged borrowing but lower borrowing costs – rescheduling past loans, which lengthened the period but lowered the actual interest payment and the anticipation of lower policy rate by December last year (a rate that had to be raised due to the Middle East conflict – so much for its effects remaining contained).

In this context it is relevant to note that the 1.25 trillion rupees borrowed from the 16 commercial banks to retire the circular debt was, after IMF approval, not included in the mark-up and defined as a one-off.

In total terms the budgeted mark-up in 2024-25 was higher by 829,666 billion rupees than what was realised at the end of the year due to a lower policy rate over the year as well as rescheduling.

The budget documents for next fiscal year 2026-27 would indicate by how much this expenditure item exceeded the budgeted amount.

Defence as a percentage of current expenditure was 15.62 percent of total current expenditure 2025-26 while last year it was at 13.3 percent (with the budgeted amount under this head lower by 2.3 percent).

The rise may well be due to higher operational costs due to ongoing terror attacks; however, it is relevant to restate that the actual current expenditure as per budget documents for last year declined by 813 billion rupees.

Running civilian government rose to 5.9 percent of total current expenditure in the current year’s budget against 5.4 percent in last year’s revised estimates due to massive pay rises at the taxpayers’ expense.

Pensions rose from 1.014 trillion rupees in the revised estimates of last year to 1.055 trillion rupees this year – money dedicated for public sector pensioners and does not include the 93 percent of those who are engaged in the private sector.

While the government has made employee contributions mandatory form last year yet greater clarity is required as to whether this amount is being set up in an escrow account or a pension fund, or whether money being fungible the government is using it for meeting its expenses, which may have some consequences down the line.

Benazir Income Support Programme (BISP) received less than 5 percent of current outlay as per the Fund’s insistence though the beneficiaries that have been identified through a scientific method of selection do not constitute the rising number of unemployed as a consequence of the Fund’s severely contractionary monetary and fiscal policies nor take cognizance of the rising poverty levels through the calorific method.

Revenue is to be generated from (i) raising indirect taxes (sales tax in particular) with the rationale that GST C-efficiency ratio (actual revenue collection from goods and services to potential) has declined from 27.4 percent to 22.8 percent over the past ten years.

The Fund proposes taxing a broad set of basic goods that remain exempt or are concessionally taxed, historical zero-rating in export sectors has narrowed the base, and post-devolution fragmentation of GST on services has added compliance and administrative complexity through four separate provincial regimes; however, these are indirect taxes whose incidence on the poor is greater than on the rich, (ii) constitutional court ruled in favour of super tax; however, there is a concern that capital flight may be further fuelled; and (iii) increasing provincial taxes and most particularly agricultural income tax that must be taxed at the same rate as on the salaried. If implemented this will have political ramifications.

An out of the box solution would be for the government to implement reforms in pensions (through employee contributions that would then be channelled into existing pensioners), wage freeze for the next three years, budgeting only critical operational expenses, and realistic targets for the mark-up while focusing on creating honest taxpayers through implementing a tax structure that is fair, equitable and non-anomalous.

Copyright Business Recorder, 2026

The sector that policymakers and commentators often criticize today is not the same as one that existed 10-15 years ago. Back then, textiles were dominated by low-value exports of yarn and greige cloth.

The industry relied heavily on subsidized inputs, while value addition and employment generation remained limited.

That structure has changed. The share of value-added products in textile exports such as knitwear, garments, bedwear and made-ups has increased from around 62 percent in 2014 to roughly 86 percent in 2025.

The share of yarn and cloth exports has steadily declined. Pakistan’s textile industry has moved up the value chain despite facing one of the most difficult operating environments among competing exporting countries. This transformation deserves greater recognition because it carries important implications for growth, employment and exports.

The old criticism of textiles was that the sector consumed subsidies without generating sufficient economic returns. There was some truth to that argument when low-value products dominated exports. But the economics of value-added textiles are fundamentally different.

Garments and knitwear are labour-intensive industries. They consume less energy than spinning, require relatively lower capital investment, and generate significantly more jobs per dollar of exports.

Labour can account for more than a quarter of production costs in garment manufacturing, meaning a larger share of value addition remains within the domestic economy rather than flowing abroad through imported fuel and machinery.

A typical garment manufacturing unit may require an investment of around $15 million, create approximately 3,000 direct jobs and generate annual exports of nearly $40 million.

Few sectors offer such a combination of export earnings and employment generation. This is precisely why countries such as Bangladesh, Vietnam and, increasingly, Egypt have built national industrial strategies around garments and value-added textiles.

Pakistan, however, continues to treat the sector as if it belongs to the old economy. Today’s textile exporters are not operating on subsidized energy or concessional financing. In fact, they are paying for inefficiencies embedded in the broader economy. Energy tariffs remain among the highest in the region. Financing costs have historically been elevated.

Taxation is complex and often punitive. Yet exporters must compete internationally against firms operating in countries where governments actively facilitate industrial growth.

These costs cannot be passed on to foreign buyers. Exporters absorb them and compete anyway. The labour cost differential illustrates the challenge. Pakistan’s minimum wage has risen to around Rs40,000 per month, which is understandable, given inflationary pressures.

However, once mandatory contributions and other charges are included, the total employer cost exceeds Rs60,000 per worker, or roughly $220 per month. In Bangladesh, the comparable cost is closer to $140.

That difference matters. It directly affects investment decisions. It influences where global buyers place orders and where manufacturers establish new facilities. It also helps explain why Pakistan has struggled to capture a larger share of fast-growing segments such as active wear and man-made fibre garments.

The missed opportunities are becoming increasingly visible. As global supply chains adjust and buyers diversify away from China, billions of dollars worth of garment orders have shifted to competing countries. Bangladesh, Vietnam and Egypt have emerged as major beneficiaries.

Pakistan has largely remained on the sidelines despite possessing an established textile base and significant manufacturing capacity.

The policy response required is neither complicated nor expensive. At the provincial level, governments should consider targeted employment support for value-added textile industries.

Labour-intensive manufacturing generates substantial economic spillovers and creates opportunities for large-scale job creation, particularly for women. Bangladesh’s experience demonstrates how garment-sector growth can transform labour-force participation and household incomes.

At the federal level, the priority should be facilitating imports of raw materials used in value-added exports, particularly man-made fibres.

Many small and medium-sized exporters face significant hurdles in sourcing inputs from international markets. Lengthy procedures, cumbersome compliance requirements and delays in refunds and duty drawbacks increase costs and reduce competitiveness.

Administrative reforms in these areas would yield immediate benefits. Another concern is Pakistan’s GSP Plus status with the European Union. This remains one of the country’s most important competitive advantages in export markets.

However, as more countries secure preferential access to European markets, Pakistan’s relative advantage is narrowing. Maintaining and strengthening this position requires sustained policy attention.

The broader economic context makes these issues even more important. Pakistan needs sustained growth of at least five to six percent annually to avoid recurring balance-of-payments crises. Such growth cannot be achieved without a meaningful increase in exports.

Much of the current policy focus is directed toward IT and services exports. That focus is understandable and should continue. However, policymakers often overlook the scale of the textile sector. IT and business-process exports may reach around $6 billion this year. Knitwear exports alone are approaching $5 billion.

Yet the policy treatment of the two sectors differs significantly. Services exporters enjoy a one percent tax regime, while textile manufacturers face the standard corporate tax structure, super tax and numerous additional levies. Both sectors generate exports. Both create employment. Yet only one receives consistent policy preference.

There is also a practical consideration. Expanding the technology workforce requires years of investment in education and skills development. Expanding employment in garments and value-added textiles can happen much faster.

The sector has the capacity to absorb large numbers of workers, including women, whose labour-force participation remains among the lowest in the region. The economic and social benefits of such expansion would extend far beyond export earnings.

Many critics continue to view textiles through the lens of the past. They see an industry dependent on state support and resistant to change. That perception is increasingly disconnected from reality. The textile sector has already undertaken the difficult transition toward value addition. It has modernized production, diversified exports and remained competitive despite high domestic costs.

In many ways, exporters have absorbed the burden of broader economic inefficiencies while continuing to generate foreign exchange and employment. The industry has done much of the heavy lifting itself. The question now is whether policymakers are willing to recognize that reality.

Global supply chains are being reshaped. New investments are flowing into competing countries. The factories being established in Bangladesh, Vietnam and Egypt today will determine export market shares for years to come.

Pakistan has the industrial base, entrepreneurial capacity and workforce to participate in this shift. What it lacks is a policy framework that recognizes where the textile sector stands today rather than where it stood a decade ago. The industry has grown up. It is time for government policy to do the same.

Copyright Business Recorder, 2026

It was 2001. The United States declared the War on Terror.

It was 2001. China joined the World Trade Organization (WTO).

It is two events and two directions.

It is guns versus goods.

Over the next two decades, the United States committed vast resources to military campaigns across Afghanistan, Iraq, Syria, and beyond. An estimate from Brown University’s Costs of War Project shows that the cumulative cost of post-9/11 wars exceeds $8 trillion. American presence has long been centered around military bases, deployments, and conflict zones.

China meanwhile picked a different ledger. Over the same period, China has steadily expanded its presence across markets worldwide, becoming the largest trading partner for well over 100 countries. Since Beijing’s entry into the WTO in 2001, China’s share of world merchandise exports rose from merely 4 percent to over 15 percent. In the meantime, the US’ share declined from approximately 12 percent, settling below 9 percent.

It is warfare versus welfare.

The contrast sharpens in scale and pace. In 2001, the US economy stood at about $10.6 trillion; today it is near $30 trillion. In the meantime, China’s GDP has grown around fifteen fold surging from just $1.3 trillion to nearly $20 trillion.

In purchasing power terms, it even exceeds the United States. Yet the comparison of aggregate growth only partly reflects the deeper shift in individual earnings. Income per person in China rose from around $1,050 to nearly $14,000, condensing decades of development into a single generation.

It is a loss of lives versus a rise in lives.

Over 940,000 people, including more than 432,000 civilians, were killed as a consequence of the post-9/11 war violence. In contrast, China lifted around 800 million people out of extreme poverty over the past decades. This is an achievement unparalleled in modern economic history.

It is domination versus development.

While the United States poured trillions into post-9/11 wars, its domestic infrastructure continued to remain unimproved. A C-grade from the American Society of Civil Engineers indicates the poor state.

Meanwhile, China stunned the world with its domestic infrastructure development in terms of scale and sophistication. Alongside, through the Belt and Road Initiative, it has financed and built roads, ports, and power networks across Asia, Africa and beyond; thereby, China extended its economic and diplomatic reach in regions where American influence once remained unchallenged.

The current US-Israel war against Iran started in February. The trilateral conflict rapidly spiralled, engulfing the entire Gulf region. The consequences are brutal: a large number of casualties, damaged infrastructure and stressed economies.

The economic linkage between Pakistan and the Gulf is significant. In fact, Pakistan’s exposure to the Gulf region is higher than that of its peers, such as Bangladesh, India, Malaysia, Indonesia, Türkiye, Thailand, and the Philippines. 12 percent of Pakistan’s exports and 31 percent of its imports are Gulf-specific.

Among exports, most are perishable goods, more susceptible to procedural delays. Imports are predominantly energy, which is critical for economic functioning. Given this, what is unfolding in the Gulf brings economic tremors of grave consequences.

In addition to trade relations, Gulf region contributes to Pakistan around 90 percent of its overseas jobs, which yield around 55 percent of remittance inflows. These are not dead statistics. A large number of households depend on these inflows for their everyday expenses, including school fees and medical bills. These can be vulnerable as the crisis continues.

Clearly, the consequences of the Gulf crisis are not regional. The Strait of Hormuz, being a major waterway for global trade, accommodates around 20 million barrels of oil per day. This amounts to about one-fifth of the global oil trade. Any disruption there has ripple effects across the global economy. Brent crude hovered around $70 before the crisis, and surged sharply day after day. Thus the conflict results in oil price surge, leading to a sharp rise in household inflation and raising concerns about macroeconomic stability among policymakers.

As of now, the Strait of Hormuz is effectively closed to commercial traffic, given the dangerous dual-blockade standoff.

And so, one looks back and speaks to Christopher Columbus.

Dear Admiral of the Ocean Sea, if you could whisper in their ears. The voyage that opened the Atlantic world was one of openness and curiosity. Not of blockage and containment.

From the land you encountered, a nation emerged. It expanded the frontiers of science, built institutions of economy and society, and connected the globe through ideas, innovation and enterprise. That legacy still commands admiration.

But there is a pattern harder to ignore. More force, more confrontation and less restraint. While exploration, invention, and openness have remained hallmarks of the spirit of the United States, Yet it has recently been drifting more toward disruptions, sanctions, and blockades.

The lesson of history is clear: resources spent on conflict are opportunities lost for economic development.

The question is about direction. Whether nations choose to invest in development or exhaust themselves in conflicts. In effect, it is choice of Warfare or welfare. In other words, it is a choice between build and burn.

Copyright Business Recorder, 2026

The Pakistan Stock Exchange (PSX) may be rising, but a rising index in a shallow, concentrated, and heavily influenced market is not the same thing as recovery. At times, it is closer to theatre: the lights are bright, the applause is loud, but the building behind the stage is still cracked.

The problem is not that the PSX has risen. Markets are allowed to rise. The problem is the meaning being attached to that rise. In a healthy economy, a sustained bull market reflects broad-based confidence in corporate earnings, household savings, investment, productivity, exports, and future growth. It shows that many investors are putting real money behind a real economic story.

Pakistan’s market is not that kind of market. It is narrow, shallow, and dominated by a small number of powerful players. When a market can be pushed by a handful of brokers, large institutions, and government-linked funds, the index becomes less a thermometer of economic health and more a mirror held at a flattering angle.

A stock index is only as meaningful as the market beneath it. Pakistan’s listed universe is small relative to the size and complexity of the economy. Large parts of the productive economy are barely represented on the exchange.

Many companies that dominate the index operate in sectors shaped by regulation, administered prices, state protection, or public-sector flows. A few heavyweight stocks can therefore move the overall index sharply even when the broader economy remains weak.

In such a structure, a rally can say more about liquidity, positioning, and influence than about investment, productivity, or prosperity.

This is why Pakistan must stop treating the PSX as a national report card. The stock market is not the economy. It does not automatically reflect factory output, export competitiveness, real wages, household purchasing power, employment quality, or the health of small and medium enterprises.

A man paying impossible electricity bills does not become richer because the index crosses another psychological barrier. A factory operating below capacity does not become competitive because a few blue-chip shares gain value. A youth looking for work does not find employment because television tickers are green. The index can rise while real life remains stuck in the mud.

The role of state-linked money makes the picture even more complicated. Pakistan has large pools of public-sector capital, pension funds, state-owned institutional investors, and government-influenced financial vehicles.

In a deep market, such flows may be absorbed without distorting the overall picture. In a shallow market, even routine buying can send powerful signals. If that buying is coordinated, encouraged, or politically celebrated, it can create an artificial sense of momentum.

The state can borrow credibility from captive or semi-captive capital and then market that movement as proof of national recovery. That is not confidence. That is stage management.

A market influenced in this way produces an illusion of prosperity. Asset owners feel wealthier. Brokers become louder. Officials become more confident. Television panels discover new adjectives. But the gains remain concentrated, and the public narrative outruns the public reality.

Pakistan’s households are still squeezed by inflation, high energy costs, weak public services, and stagnant incomes. Businesses still face policy uncertainty, tax harassment, import constraints, expensive credit, and uncompetitive utility tariffs.

Exporters still struggle with energy pricing, delayed refunds, inconsistent rules, and a tax system that often exhausts the compliant while letting the informal escape. None of these structural weaknesses disappears because the market has rallied.

The greater danger is political complacency. A rising market can become an excuse to declare victory before the hard work has even begun. It tempts policymakers into believing that optics are a substitute for reform. Pakistan has seen this film before, and frankly, the plot is getting tired.

Temporary stabilisation is dressed up as transformation. IMF discipline is treated as domestic success.

Lower default risk is presented as growth. A change in sentiment is sold as structural reform. Then, once the headline glow fades, the same weaknesses return: low productivity, narrow exports, energy sector circular debt, tax complexity, poor governance, and dependence on external financing.

Markets can anticipate better days, but anticipation must eventually be validated by fundamentals. If earnings rise because firms are more productive, exports expand, costs fall, governance improves, and investment returns, then a market rally has substance. If earnings rise mainly because of accounting effects, price increases, protected margins, tax arbitrage, or financial engineering, then the rally is not a national recovery story. It is a narrower story of who is positioned to benefit from the current structure. That structure may reward certain listed firms while punishing the wider economy. Pakistan should be mature enough to understand the difference.

A real bull market would look very different from a managed or narrow rally. It would be supported by broad-based corporate earnings across sectors, not just a handful of index heavyweights.

It would coincide with new listings from productive industries, especially export-oriented manufacturing, technology, logistics, value-added agriculture, and competitive services. It would attract long-term institutional capital rather than speculative inflows chasing short-term momentum.

It would be accompanied by higher private investment, rising export orders, stronger capacity utilisation, and credible energy and taxation reforms. It would not require daily cheerleading. Real strength does not need a public relations department.

The late arrival of the small investor is another uncomfortable truth. Retail investors typically enter when the story has already become fashionable. They are drawn in by headlines, informal tips, WhatsApp enthusiasm, and the fear of missing out. In a deep and transparent market, retail participation can be healthy.

In a shallow market where exits are narrow and large players can move early, the small investor often becomes the last passenger on a crowded bus. When sentiment turns, the big players have already stepped off.

The small investor is left holding the ticket and wondering why the destination changed.

Media coverage also needs discipline. Too often, market rallies are reported as though they are national achievements rather than financial developments requiring context.

A rise in the index is announced with drums; the underlying breadth, volume, concentration, foreign participation, valuations, and earnings quality receive far less attention. That is lazy reporting. A serious discussion would ask harder questions. How many stocks actually drove the rally? Who were the net buyers? What role did public-sector institutions play?

Regulators should be asking the same questions with more authority. The goal of regulation is not to celebrate index levels. It is to ensure market integrity, disclosure, fair dealing, and confidence based on rules rather than influence.

Pakistan needs clearer disclosure of institutional flows, tighter scrutiny of market manipulation, stronger governance standards, and credible enforcement. If a few players can dominate direction and narrative, the market is functioning less like a fair platform for capital formation and more like a private club.

The deeper issue is that Pakistan has repeatedly confused financial signals with economic substance. Exchange-rate stability is treated as competitiveness. A primary surplus is treated as fiscal health. A stock market rally is treated as recovery. These are indicators, not outcomes.

The outcome that matters is whether Pakistan can produce more, export more, employ more, invest more, and govern better. The country needs factories that can compete, energy prices that make sense, taxes that are simple enough to comply with, courts and regulators that are predictable, and a state that stops punishing formal enterprise while rewarding rent-seeking.

A genuine recovery would be visible outside the trading screen. It would show up in rising industrial production, stronger exports, lower energy distortions, revival of private investment, and a wider base of profitable firms.

It would show up in new entrepreneurs choosing formalisation because the state made it worthwhile, not suicidal. It would show up in households feeling that wages can keep up with costs. It would show up in businesses planning expansion rather than survival. A stock index can confirm such a recovery; it cannot manufacture it.

The PSX should not be dismissed. A functioning stock market can mobilise savings, finance companies, improve transparency, and provide investment opportunities. But for that to happen, the market must become deeper, broader, cleaner, and less vulnerable to direction by a few.

More productive companies must list. Governance must improve. Retail investors must be educated, not seduced. Above all, the state must stop treating the market as a billboard for economic success.

Pakistan needs confidence, but confidence built on managed signals is fragile. The country does not need cosmetic optimism; it needs credibility. It does not need a rally that creates a false sense of well-being while factories, exporters, households, and small businesses continue to suffer. It needs reform that is boring, difficult, and real; the kind that does not trend on television but changes balance sheets, investment decisions, and household lives.

The PSX may be rising, but Pakistan must ask what exactly is rising with it. Are productivity, exports, investment, governance, and incomes rising too? Or is the index simply reflecting liquidity, concentration, and the behaviour of a few powerful investors? Until the answer is clear, the rally should be treated with caution, not worship.

A shallow market cannot prove that the economy is well. It can only reflect the forces acting upon it. Sometimes it is a mirror. Somet imes it is a mirage. Pakistan must check carefully before mistaking sand for water.

Copyright Business Recorder, 2026

In the absence of a finalized peace agreement to resolve the conflict, a ceasefire may be extended for an additional 60 days if no accord is reached between the US and Iran.

This situation has led to a sharp drop in oil prices, falling nearly 10 percent, which still poses a burden for oil-importing nations.

Much of the optimism relies heavily on one-sided statements from President Donald Trump, who claims the peace deal is “largely negotiated.”

However, investors are puzzled by the absence of confirmation from various Iranian sources that any agreement with the US has been finalized.

Despite the positive rhetoric from the US President, both parties have continued their assaults on each other, leaving the market uncertain about the ultimate outcome.

Alarmingly, it has been over seven weeks since the US and Iran agreed to a ceasefire and began discussions to resolve the conflict and stabilize the situation in the Strait of Hormuz.

This sentiment has allowed 10-year bond yields to ease by 12 basis points to 4.4 percent, and the S&P index has climbed by more than 1 percent.

On the economic front, last week’s revision of the US first-quarter GDP growth from an initial estimate of 2.0 percent to 1.6 percent was anticipated by the market, given the worsening economic conditions stemming from the geopolitical crisis, particularly the effects of rising oil prices and trade tensions.

Strong growth in imports played a significant role in pulling GDP downward. Meanwhile, data on US personal income and spending highlighted the real challenges posed by increased energy costs, with Personal Consumption Expenditure (PCE) rising to 3.8 percent, the highest in three years, largely due to gasoline prices.

A concerning risk is that persistent inflation could diminish consumer purchasing power.

Currently, the futures market is anticipating a 60% chance of a Federal Reserve rate increase by the year’s end.

However, a larger risk exists that escalating inflation could prompt the Fed to take action more swiftly unless inflationary pressures subside.

If uncertainties surrounding the conflict continue, this Friday’s release of non-farm payrolls (NFP), a key employment report under normal circumstances will be closely scrutinized, as traders seek reasons to stay engaged in the market.

The expected figures for May are 96,000 compared to 115,000 in April, with the unemployment rate projected to remain steady at 4.3 percent. Recent NFP data from the US has been mixed.

Additionally, the US Dollar has seen a slight decline due to easing geopolitical tensions and falling oil prices. However, currency traders are cautious about further weakening the dollar, given rising inflation figures that support a potential interest rate hike. Higher US interest rates make the currency more appealing due to the yield differential.

While the Swiss Franc continues to strengthen, the Japanese Yen remains under pressure, although it is weakening at a slower rate amid concerns of Bank of Japan intervention.

Notably, the Canadian dollar, or Loonie, has not benefited from declining oil prices, as the Canadian economy is heavily dependent on oil exports, which significantly contribute to its economic landscape. Furthermore, CAD has been impacted by disappointing Canadian GDP figures, revealing a contraction of 0.1% against anticipated growth of 0.1 percent.

OIL Brent $91.12

In the meantime, the future of oil prices will greatly hinge on the results of the peace talks between the USA and Iran. Optimism surrounding a potential 60-day extension of the ceasefire has caused Brent oil to drop over 9 percent over the weekend, closing near $92. However, it may not decline significantly unless both parties announce a truce.

The Strait of Hormuz remains a contentious issue that must be addressed at the highest levels, and shippers and insurers will need to be mindful of their pricing.

I still maintain that prices around $80 present a buying opportunity, as oil prices are likely to rise in the weeks ahead. This belief stems from the depletion of the Strategic Petroleum Reserve (SPR) and the ongoing shortfall in oil supply necessary to replenish it to full capacity.

GOLD @ $4539

We also witnessed significant fluctuations in gold prices primarily due to developments concerning the US-Iran conflict. Subsequently, there was a recovery in gold prices as oil prices softened amid hopes of improved relations between the two nations.

As long as geopolitical news continues to circulate, it will guide market movements depending on the nature of the information released.

In the absence of any delays in announcing outcomes, traders may focus on US economic data this week, as several key economic indicators are set to be published by federal agencies.

WEEKLY OUTLOOK - Jun 1-5

#GOLD @ $4539- This week, gold must maintain levels at $4465 and $4385 to see any gains. A move above $4598 could push it to $4660 or higher before a downturn occurs.

However, much will depend on new inflows, which means volatility is likely to remain.

#EURO 1.1660- Euro must surpass 1.1740 to make further advancements. Nevertheless, a decline below 1.1570 would heighten the risk of testing the 1.1490 levels before stabilising.

#GBP @ 1.3461- As long as the Pound Sterling is able to hold the support at 1.3365, it could try to rise. A breakthrough of 1.3570 would enable additional gains. Conversely, if it drops below the support level, there could be a risk of falling to 1.3310.

#JPY @ 159.27- The $/JPY pair is expected to test 159.90 and 160.65. A breakout above these levels could lead to a rise towards 161.60. On the other hand, if it falls, pay attention to 157.90, as a breach of this level could lead to a decline towards 155.40.

Copyright Business Recorder, 2026

For a metropolis that serves as Pakistan’s economic engine, shifting heavy port traffic onto a dedicated expressway network isn’t just about easing daily commutes; it is about fundamentally restructuring the city’s logistics framework.

The realisation of a multi-billion-rupee infrastructure project in a challenging macroeconomic climate points to the success of the Sindh government’s public-private partnership (PPP) model. Instead of entirely draining the public exchequer, the provincial government has successfully formed consortiums with the business community to finance, build, and operate these mega projects. This model, pioneered in the province and previously instrumental in initiatives ranging from regional healthcare networks to critical transit routes like the Lyari Expressway, proves that when the government shares risk and reward with private enterprises, the result is fast, efficient, large-scale public delivery.

The Shahrah-i-Bhutto stands as a testament to this, promising to reduce travel times out of the city by over an hour and significantly cutting the cost of doing business for industries reliant on port logistics. For the citizens, this means reclaiming hours lost to gridlock. Less traffic congestion in Karachi’s core will directly improve the quality of life, reducing vehicular emissions and allowing residents to spend less time idling on congested thoroughfares and more time with their families.

Yet, while roads and expressways form the arteries of an economy, the destination matters just as much as the journey. In his address, Bilawal Bhutto-Zardari laid out a vision that pivots from traditional infrastructure to the creation of dynamic, wealth-generating hubs.

Chief among these is the proposed Sindh International Financial Centre. Inspired by the highly successful Dubai International Financial Centre (DIFC), this initiative aims to provide a specialised, business-friendly regulatory zone that can attract foreign direct investment, multinational headquarters, and high-value financial services. By creating a secure and modern enclave for global capital, Karachi can reclaim its historical position as a premier financial hub of the region. For the people of Pakistan, this translates into direct economic opportunity: high-paying jobs, skills development, and the retention of local talent that might otherwise seek greener pastures abroad. This is further complemented by plans for a special defence production zone aimed at meeting both domestic needs and export demands.

Furthermore, the blueprint for Karachi’s future embraces one of its most underutilised assets: its coastline. The commitment to developing a modern, world-class corniche is a strategic move to unlock the city’s tourism potential. A thoughtfully developed coastal front does more than beautify a city; it stimulates the local economy by creating a vibrant ecosystem of hospitality, retail, and recreational industries.

Much like the transformation of waterfronts in global cities, a modern corniche will offer citizens a premier public space while positioning Karachi as an attractive destination for domestic and regional tourists. Crucially, it provides citizens with accessible, high-quality recreation options at home. Instead of travelling abroad for leisure, families across Pakistan will have a world-class public destination right here, fostering community well-being and civic pride.

When you combine the ambitious Keti Bandar seaport project which Bilawal Bhutto-Zardari also suggested might be the world’s first port built through public-private partnership, the new financial and industrial zones, and the seamless connectivity provided by the expanding expressway network, the broader strategy comes into focus. Karachi is not just being paved; it is being structurally repositioned for sustainable, long-term economic growth. The success of the PPP model has provided the blueprint. Now, it is time to build the future.

Copyright Business Recorder, 2026

What was once primarily a disagreement over uranium enrichment and sanctions has increasingly transformed into a confrontation over who ultimately shapes the security architecture of the Persian Gulf and the world’s most sensitive energy corridor.

The Strait of Hormuz has once again become the geopolitical pressure valve of the global economy. Barely 21 nautical miles wide at its narrowest point, this maritime choke point carries nearly one-fifth of global oil and LNG trade and serves as the strategic gateway between the Gulf and the Arabian Sea.

Yet behind the military rhetoric lies a more complicated legal and strategic debate: do Iran and Oman possess legitimate control over the Strait under international law, and if so, why does the United States object so strongly?

The legal reality is stated to be that the Strait of Hormuz lies entirely within the territorial waters of Iran and Oman. Under the United Nations Convention on the Law of the Sea (UNCLOS), coastal states possess sovereignty over their territorial seas extending up to 12 nautical miles from their coastlines. Since the Strait is narrower than 24 nautical miles at critical points, the territorial waters of Iran and Oman overlap and effectively cover the entire passage.

This geographical fact gives both countries a strong legal basis to claim administrative and security jurisdiction over the strait.

Oman, which is a signatory to UNCLOS, accepts the principle of transit passage but has historically maintained reservations regarding unrestricted movement of foreign warships through its waters. Iran, while not having ratified UNCLOS, nevertheless asserts that it retains sovereign rights over its portion of the strait and can regulate passage in the interest of national security.

However, international maritime law also established a balancing principle. In return for allowing coastal states to expand territorial seas from the traditional three nautical miles to twelve nautical miles, UNCLOS created the doctrine of “transit passage” for international straits. This doctrine guarantees uninterrupted navigation for commercial shipping and limits the ability of coastal states to block or suspend passage.

This is precisely where the dispute begins.

The United States argues that the Strait of Hormuz is an international waterway indispensable to global commerce and energy security. Washington therefore insists that freedom of navigation must supersede unilateral restrictions imposed by either Iran or Oman. American naval deployments in the Gulf are based upon this principle. The United States itself has never ratified UNCLOS. Washington nonetheless maintains that freedom of navigation through international straits has become part of customary international law binding on all states.

From Tehran’s perspective, American military patrols close to Iranian waters represent strategic coercion rather than lawful maritime protection. Iran further argues that repeated sanctions, covert operations and military threats justify tighter control over a passage located within its own territorial sphere.

Most countries, however, do not support the idea of Iran or Oman exercising exclusive or restrictive control over Hormuz. The European Union, China, Japan, India and major energy importing states prefer uninterrupted neutral access under internationally accepted maritime norms. Even countries maintaining cordial relations with Tehran remain cautious about endorsing toll systems, selective passage permissions or militarized oversight.

At the same time, many states are equally uncomfortable with unilateral American military dominance in the Gulf. The widening conflict between the United States and Iran has convinced several countries that over-militarization of the strait itself increases risks to commercial shipping rather than reducing them.

This creates a reluctant middle ground in global opinion. Most states accept that Iran and Oman possess territorial sovereignty over the strait, but they reject any attempt to weaponise geography for political leverage.

Simultaneously, they oppose transforming the Strait of Hormuz into a permanently militarized corridor controlled by extra-regional powers.

Iran has well understood the global politics, geography and legality and the need to play around it to strengthen its case. Oman is needed as a partner to make things happen in Iran’s favour. There is no publicly confirmed, legally ratified treaty showing that Iran and Oman have formally agreed to “joint control” of the Strait of Hormuz in the sense of sovereign co-ownership or exclusive administration.

What does exist — based largely on Iranian official statements, unofficial drafts, and media leaks during the 2026 Gulf crisis — is evidence of negotiations for a joint transit-management and security framework.

Tehran repeatedly stated that “pre-war rules” would no longer apply after the US-Israel-Iran confrontation. Iran wanted a new legal-security regime recognizing its enhanced strategic leverage.

Strategically, Iran’s objective appears less about formal sovereignty and more about the following: institutionalizing its leverage, legitimizing security oversight, monetizing transit, and reducing direct Western naval dominance in the Gulf.

Oman’s likely objective, by contrast, is more pragmatic: preventing conflict spillover, keeping shipping open, preserving mediator status and; avoiding direct confrontation with either Iran or the US.

So, the arrangement — if it eventually materializes — would probably resemble a joint maritime management protocol, not a classic territorial control agreement.

The present stalemate can only be resolved through a multi-layered diplomatic framework.

The Strait of Hormuz ultimately represents more than a legal dispute over territorial waters. It symbolizes the unfinished struggle between sovereign rights and global commons, between regional ownership and international dependence. Neither absolute Iranian control nor perpetual American naval primacy offers a sustainable solution. Stability will emerge only when the strait is treated not as a battlefield of competing hegemonies, but as a shared artery of global commerce whose security depends upon cooperation rather than coercion.

Copyright Business Recorder, 2026