EDITORIAL: There is growing consensus among stakeholders that Pakistan’s macroeconomic indicators have improved significantly. However, this stabilisation has not translated into better economic conditions for the masses. Inflation has fallen sharply, yet poverty levels continue to worsen — a matter of serious concern.
The standard argument for alleviating poverty is to spur economic growth. The problem is that Pakistan has yet to fix its flawed, import-led growth model. In the absence of external financial inflows, such growth inevitably leads to another crisis which, in turn, exacerbates poverty. The government must learn from past mistakes and adopt more prudent policies.
Fresh challenges are also emerging. Floods are likely to dampen the natural economic momentum. Inflationary pressures are already visible, with prices rising more than 2 percent last month. This could result in slower GDP growth, tax revenue losses, and higher spending on rehabilitation efforts. Such fiscal pressures may lead to new tax measures.
The IMF (International Monetary Fund) is already pushing for additional tax rates to offset revenue shortfalls, though the government appears reluctant. In Islamabad, the prevailing sentiment is to rely heavily on Saudi support following the signing of the recent defence pact.
But there is no room for complacency. Pakistan must not be carried away by its improving geopolitical position. Investment rarely flows without commercial viability — and at present, Pakistan lacks a robust growth story. Many economic sectors remain sluggish, the middle class is shrinking, and the potential market size is contracting. The country is not yet ready to attract meaningful investment in efficiency-seeking sectors. Manufacturing inefficiencies must be addressed, starting with energy sector reforms.
Deregulation and privatisation of distribution companies (DISCOs) are essential. The government must stop forcing industrial consumers onto the grid; without lower energy costs, efficiency-driven investment will remain out of reach. Tax rationalization for formal businesses — both direct and indirect — is another key area. The government should reduce its size at both federal and provincial levels to offset short-term revenue losses, simplify regulations, and introduce a clear, effective industrial policy.
Pakistan needs an export-led growth model that also creates jobs. Attracting dollars without meaningful reforms is unrealistic. The risk is that the government, after receiving a few billion dollars in handouts, might revert to the old habit of opening the floodgates to unsustainable growth. Political parties in power may be tempted to regain popularity through fiscal stimulus and ill-conceived relief packages — a strategy that has repeatedly failed.
That there is no shortcut to poverty reduction is a fact. Quick-fix growth creates an illusion of prosperity, enriching the elite while the benefits rarely trickle down to the poor before the next crisis hits. The government must rethink its development strategy and adopt a bottom-up approach focused on broad-based, sustainable growth.
Copyright Business Recorder, 2025