EDITORIAL: The economic stabilisation phase is dragging on painfully long. The government has little choice but to continue with tight fiscal and monetary policies. By design, it is not striving for higher growth. Therefore, frustration is creeping in. And, one can discern the growing desperation within the government circles as this is the fourth consecutive year of low growth.
It is important to note that the finance minister has been advocating caution, emphasising the fact that the implementation of structural reforms is critical to the country’s economic future. Moreover, the quest for reforms is also indispensable in order to avoid another boom-and-bust cycle.
The problem, however, is that the stabilisation phase cannot be allowed to prolong indefinitely; it must have a definitive end point or resolution. In other words, the situation is presenting a policy dilemma for the government or its economic team. But economic dilemmas are often complex and have no easy answers.
So far, the government has yet to showcase any meaningful reform, even as it enters the third year of stabilisation. The issue perhaps lies in the finance team’s lack of imagination. It has been successfully maintaining low-growth equilibrium; yet even at below 4 percent GDP growth, the trade deficit continues to widen, reaching USD 12.5 billion in 4MFY26, up 38 percent from the same period last year.
Imports crossed USD 6 billion mark in October 2025 — the first time since August 2022. The problem is that exports are not growing in tandem. The only saving grace is lower oil prices and rising home remittances. Otherwise, even modest trade growth is slipping out of control.
The government has failed to resolve the twin problems of energy and taxation, both of which are fuelling a growing sense of deindustrialisation. At its core, this reflects issues of competence and governance within the bureaucracy. The IMF (International Monetary Fund) is demanding Pakistan publish the Governance and Corruption Diagnostic (GCD) Assessment Report before the Board meeting for the second programme review.
Within taxation, the FBR (Federal Board of Revenue) must be fixed. The FBR Chairman claims that Rs1.2 trillion of the Rs1.7 trillion total tax gap is attributable to top income earners. This group is small in number, and if the FBR has sufficient evidence and material, why can’t it extract the dues? Institutional hurdles within the system may be preventing action.
The economy cannot afford such implicit favouritism towards certain sectors. Fixing the FBR is essential to creating fiscal space for lowering income and sales tax rates, which are currently stifling growth and accelerating the outflow of human and financial capital. It would also allow greater fiscal room for development spending.
Another major pain point is the ever-rising energy costs. The sector needs an overhaul. The power ministry dominates the landscape, prioritising the failing grid — but that approach is not working either. In the process, petroleum-sector circular debt is rising steeply, and the government has yet to halt the build-up in power-sector circular debt. The policy of full-cost recovery simply isn’t delivering results.
The government must address energy from the source. It should stop discriminating between energy molecules in view of the fact that grid power, gas, and petroleum products are all forms of energy. Their pricing should be aligned to ensure the most efficient use.
Governance of distribution companies must improve to reduce losses, and the privatisation process should be accelerated. So far, only the token privatisation of the First Women Bank has succeeded. The real litmus test lies with national carrier PIA — if that succeeds, it could restore investor confidence in a meaningful manner. But the toughest reforms are needed in the energy-sector companies. It’s about time the government walked the talk.
Copyright Business Recorder, 2025