State of economy: stabilisation at the cost of growth

EDITORIAL: The state of the economy is not presenting any encouraging picture. Businesses and consumers across the board are feeling the brunt. And the frustration is now oozing out from different circles within the ruling political parties, as they think the performance is not good enough to fetch votes in the probable 2028-29 elections. In other words, political nervousness is growing.

The finance minister, Mohammad Aurangzeb, is still talking about basic economic hygiene. He still admires economic stabilization. In the short run, this mantra works. However, maintaining stabilization by strangulating the economy for five straight years could rather be counterproductive. The issue is that fiscal reforms are missing—both in broadening the tax base and curtailing the government’s running expenditure.

No doubt, the government is running a fourth straight year of primary fiscal surplus, while the consolidated fiscal deficit is at its lowest level in over two decades. However, that does not help alleviate poverty. As per World Bank data, extreme poverty (people living below $3 per day) was at 23 percent in Pakistan in 2024, which is over four times that of Bangladesh (5.9 percent) and India (5.3 percent).

Almost half of Pakistan’s population struggles to afford adequate food, housing, education, healthcare, and other essentials, as 48 percent of the population lives below $4.2 per day, which is more than double the proportion in the other two countries.

The current stabilization policies are making the situation even worse. The vulnerable people need employment opportunities, and these can only be generated through higher growth. Stabilization is only giving comfort to the elite while making life miserable for most. Growth requires fiscal spending on development and rationalizing taxation in the formal sector. Both are missing.

There is no visible decline in the government running expenditure; consequently, the public perception is highly unfavourable. Foreign trips and private jet travel are only increasing. The number of ministers and advisers continues to grow, and there is no end to the rewards for the ruling elite.

And, to meet the fiscal targets, the axe only falls on development spending. The federal PSDP (public sector development plan) averaged 0.6 percent of GDP over the last five years, compared to 1.3 percent in the preceding five years. This situation is worsening every year. Cutting development spending is tantamount to cutting your own flesh; there is a limit to how much can it be cut.

Some would say that lower federal spending is compensated for by higher provincial spending. However, this year, the provinces are giving an extra Rs1 trillion to the federal government and, in turn, they are cutting spending on development, health, and education. This is criminal in a country where 25 million children (35 percent of the total) aged 5 to 16 are out of school and 40 percent of children under five are stunted.

There should be a health and education emergency in the country but, on the contrary, governments are cutting this expenditure to meet the IMF’s targets while doing nothing to reduce their own slack.

The government needs to create space for development and social sector spending by lowering all other types of expenditure. And, additional revenues should be generated by broadening the tax base and bringing retailers, traders, and others into the net. There should be no discrimination. The culture of untouchability should end before it is too late. The government needs to confront this problem head-on. Without doing so, the country may keep falling into the abyss, and the disconnect between the masses and the ruling elite may continue to widen. There is a limit to how long things can be allowed to slip like this. Eventually, this could explode and wash away everything.

Copyright Business Recorder, 2026