Strategic imperatives for Pakistan

As world enter the second quarter of the 21st century, the global economic and geopolitical order is undergoing a profound transformation.

The neoliberal paradigm defined by deregulation, free markets, fiscal austerity, free trade, and globalization that has shaped international policy since the late 20th century is now in retreat.

Economic volatility, disrupted supply chains, financial system shocks, and labor market instability have exposed the vulnerabilities of this model.

Simultaneously, nationalist and populist movements have surged, fueled by deepening inequality and growing disillusionment with multilateral institutions. History rarely moves in a straight line; instead, it unfolds through cycles of collapse and renewal. Just as the fall of the Roman Empire preceded the Dark Ages and the aftermath of World War I set the stage for fascism, It now find itself in an interregnum a period between the decline of an old order and the uncertain emergence of a new one.

Antonio Gramsci’s observation that “the old world is dying, and the new world struggles to be born: now is the time of monsters” captures the turbulence of the World’s current moment.

This interregnum is marked by the steady erosion of US global hegemony and the rise of competing powers, particularly China. The world is fragmenting into multiple spheres of influence, with authoritarian and semi-authoritarian regimes now controlling over half of global GDP and governing nearly three-quarters of the global population.

The post-Cold War liberal order once defined by democratic governance and open markets is being replaced by a multipolar, ideologically diverse, and increasingly volatile landscape.

The shift away from Keynesianism began under President Clinton but took a decisive turn under President Trump, who challenged neoliberal orthodoxy through protectionist policies and open hostility toward international institutions like the WHO and WTO. These moves accelerated the retreat from globalization and signaled a resurgence of economic nationalism.

At the same time, global institutions such as the United Nations are facing crises of legitimacy and effectiveness, exemplified by internal dissent and declining trust among member states and staff.

Technological transformation is increasingly reshaping the global balance of power. China’s rapid advances in biotechnology, healthcare, and energy signal a shift in global innovation leadership, reflecting historical patterns in which technological revolutions have redrawn geopolitical boundaries. At the same time, the nature of conflict is evolving, with middle powers playing central roles in regional wars and disputes.

The Russia-Ukraine war, enduring India-Pakistan tensions, the Armenia-Azerbaijan clashes, and the escalating Iran-Israel rivalry all illustrate a more fragmented and multipolar international landscape. In response to growing insecurity, European nations are significantly increasing defense spending, despite facing headwinds such as demographic decline, excessive regulation, and stagnant productivity.

The United States is weighed down by a record-breaking $36 trillion national debt, driven in part by rising interest costs, while China confronts deflationary pressures and mounting instability in its property sector.

Across major power centers, longstanding economic and political assumptions are breaking down. What ultimately emerges from this period of upheaval remains uncertain, but one thing is clear: the liberal, rules-based international order is unraveling, and its replacement will be forged in an era defined by intensifying strategic rivalry, contested values, and unpredictable realignments

Pakistan at a crucial juncture

Amidst the turbulence of a rapidly transforming global political, economic, and social order, developing nations are uniquely positioned to redefine their roles and gain greater relevance on the world stage. As established power structures fragment and the liberal international order undergoes fundamental realignment, there is an opening for emerging economies to assert influence and shape the evolving global landscape.

Within this context, Pakistan one of the youngest countries demographically stands at a pivotal crossroads, confronting not only external disruptions but also deep-seated domestic challenges. With over 65% of its population under the age of 30, Pakistan possesses immense demographic potential. However, unless it fundamentally reorients its policy frameworks, institutional structures, and foreign relations, this potential risk will be becoming a liability.

Now engaged in its 25th program with the International Monetary Fund (IMF), Pakistan remains bound to a policy framework shaped by neoliberal orthodoxy characterized by austerity, privatization, and limited state intervention. These prescriptions, largely influenced by the Chicago School of Economics, have not delivered sustainable growth or structural transformation. Instead, Pakistan continues to wrestle with an identity crisis: caught between outdated economic models and the imperatives of a changing global economy.

Its development trajectory is marked by several structural deficiencies, including a premature leap from an agriculture-based economy to a service-dominated one, bypassing the critical stage of industrialization that underpinned the economic rise of East and Southeast Asia.

Furthermore, the country’s overdependence on external conditions particularly remittances and foreign aid combined with a consumption-led growth model and persistently weak export performance, has led to chronic balance-of-payments vulnerabilities. In FY2025, remittances surpassed export revenues, underscoring the structural imbalance in Pakistan’s external sector.

Socioeconomic challenges compound these economic weaknesses. High poverty levels, double-digit inflation, sluggish GDP growth, rising youth unemployment, and low human development indicators especially in health, education, and gender equity reflect the multidimensional nature of the crisis.

Although the 18th Amendment to the Constitution devolved key service delivery responsibilities to the provinces, outcomes remain poor despite rising budgetary allocations. This failure stems less from resource scarcity and more from persistent governance failures, weak institutional capacity, and lack of accountability.

Once regarded as a highly competent administrative machine, Pakistan’s civil service has suffered significant degradation due to politicization, nepotism, and bureaucratic inertia. The establishment of the Special Investment Facilitation Council (SIFC) a parallel, military-backed mechanism designed to fast-track investment decisions serves as both a tacit admission of institutional decay and an attempt to bypass entrenched administrative inefficiencies.

Pakistan’s investment-to-GDP ratio, one of the lowest in the region, continues to constrain capital formation and long-term economic resilience. Chronic underinvestment hampers the country’s ability to enhance productivity, drive innovation, and develop competitive industries.

Amidst global disruptions marked by supply chain reorientations, technological revolutions, and a rebalancing of geopolitical and economic alliances Pakistan faces a rare but fleeting window to pursue structural transformation. Seizing this moment requires four foundational policy shifts.

First, Pakistan must establish transparent, consistent, and predictable regulatory frameworks to restore investor confidence and reduce the uncertainty that has long plagued its business environment. Second, it must drastically reduce the cost of doing business by cutting red tape, addressing energy and logistics bottlenecks, and improving physical and digital infrastructure.

Third, improving contract enforcement and judicial efficiency is essential to upholding the rule of law and create a level playing field. Finally, institutional strengthening and political stability must form the cornerstone of long-term development without which all reform efforts risk unraveling.

Complementary to these structural reforms is the urgent need to broaden the tax base, integrate the large informal economy, and enhance fiscal transparency and accountability.

A more equitable and efficient tax regime would not only reduce fiscal dependence on indirect taxation burdening the poor and middle class disproportionately but also create space for greater public investment in health, education, and infrastructure. At the same time, Pakistan must take bold steps to stem the brain drain and foster conditions that retain and attract skilled talent.

With millions of young Pakistanis entering the labor market each year, investing in human capital development is no longer optional; it is essential for achieving productivity gains, supporting innovation-led growth, and building a knowledge-based economy.

Despite ongoing fiscal constraints, revitalizing the Public Sector Development Program (PSDP) remains critical for catalyzing inclusive economic growth. Prioritizing high-impact investments aligned with national strategic goals, backed by robust feasibility assessments and oversight mechanisms, can significantly amplify the multiplier effects of public spending.

Well-targeted infrastructure and social sector projects can unlock new economic corridors, raise living standards, and reduce regional disparities helping translate fiscal outlays into tangible development outcomes. Such reforms, however, require political will, technocratic expertise, and societal consensus none of which can be taken for granted.

On the foreign policy front, Pakistan must abandon outdated paradigms of alignment and dependency, which defined much of its Cold War-era diplomacy and post-9/11 strategic orientation. In a rapidly emerging multipolar world, Pakistan must pivot toward a doctrine of strategic autonomy, balancing relations with both Eastern and Western powers without being subsumed into rival geopolitical blocs. This recalibration is crucial not only to preserve national sovereignty but also to diversify economic partnerships and secure greater regional integration.

In particular, Pakistan must prioritize regional diplomacy, seeking to improve trade, connectivity, and cooperation with neighboring countries especially India, Afghanistan, Iran, and Central Asian states. As South Asia assumes greater geopolitical and economic importance, Pakistan has the opportunity to position itself as a bridge between East and West, and between Central and South Asia a conduit for energy, trade, and dialogue.

The global decline of neoliberalism, along with the realignment of power centers from Washington and Brussels to Beijing, New Delhi, and Riyadh presents both formidable challenges and unique opportunities. For Pakistan, the choice is stark: either continue on a path of reactive crisis management, or embrace bold, forward-looking reforms that reposition the country as a serious, sovereign, and responsible stakeholder in the global order.

The path to resilience and influence lies not in rhetoric or short-term fixes, but in institutional renewal, inclusive development, and sustained investment in human capacity.

In conclusion, Pakistan’s transformation will not come through incrementalism or dependence on external lifelines. It will require visionary leadership, courageous policymaking, and a new social contract between the state and its citizens.

Only through credible, transparent, and future-oriented strategies can Pakistan unlock its vast potential and chart a course toward inclusive, sustainable, and enduring growth in the decades ahead.

Copyright Business Recorder, 2025