Adapt and fix it

Private investment in Pakistan has dropped by more than 46 percent over the last six years. Why? Because investment follows profit. Businesses invest where they foresee a return, and this is true in Pakistan, as it is true anywhere else in the world. Profit is one of the main driving forces behind all business activity.

Recently, Khurram Hussain, a noted economic journalist, while commenting in a local newspaper on the proposals being sought by the government to revive the economy, wrote that “the days of cheap energy and cheap money are over”. He further argued that “nothing good has ever come out of the proposals the business community has been bringing to the government over the past half century”. While partially agreeing, I believe there is more to the story than meets the eye that needs attention.

Last week, the Prime Minister established several committees tasked with making economic recommendations.

Unlike previous times, I believe this time some recommendations may actually be implemented. Winding down of operations and shifting of investments to other countries by a number of big local entities (exhibit: Procter & Gamble’s decision to exit manufacturing and catering to Pakistan from their other operations in the region) seems to have struck a nerve with the current government, resulting in the committees’ formation.

There are reports from the Federal Board of Revenue that proposals of reducing corporate and individual tax rates, as well as reducing the GST by a few percentage points are being considered. These measures would provide much-needed relief to professionals, reduce the ongoing brain drain, and encourage companies to invest domestically, stimulating GDP growth and reducing unemployment.

Exports, on the other hand, continue to decline year after year, with little investment entering the sector. If the returns had been attractive, investors would have lined up as they once did for Independent Power Producers (IPPs) — a legacy that still shapes the economy thirty years later. Yet, the high cost of doing business continues to deter investment, with the only exception being the mining industry (which I believe Government does know what they are offering and investors do not know what they are getting).

Pakistan has struggled to attract investment in agriculture, textiles, IT and other such industries. It is clear that till the root cause of high costs is not addressed, investment will remain stagnant.

Let’s be clear - Businessmen are not seeking handouts. What they truly want is a level playing field, with sustainable, long-term policies implemented by the government. With successful businesses, the country will experience a surge in job creation, generation of foreign exchange, GDP growth, and higher tax collection. The only viable path to Pakistan’s economic survival is facilitation of the private sector – and it is the government’s duty to deliver.

At present, Pakistan stands at a crossroads. The new global tariff regimes present a huge opportunity for the country, but seizing it requires clear, decisive action. We must adapt to an export-led growth model, which has delivered universally or remain with our current economic policies that have led us to reduced investments, increased unemployment and instability. To accelerate export-led growth, the following needs to be fixed:

Exchange rate: Pakistan’s Real Effective Exchange Rate (REER) is now touching 102. For any export-based economy, the REER needs to be lower. We need to let USD be market based, which will promote exports and discourage imports.

Interest rate: For the last six years, Pakistan has had the highest real interest rate. Large-scale manufacturing and export capacities cannot grow under such pressure. Interest rates must return to single digits, which can only be achieved if inflation, especially food inflation, is managed through effective policies.

Energy pricing: For Pakistan to be a competitive economy, the energy rate across the country needs to be uniform, aligned with regional and global rates. Exporters are not seeking subsidies but are looking to end cross-subsidization which burdens their industry to facilitate others.

Taxation: High taxation is crippling exports. From 1 percent turnover tax, we have moved to 1 percent minimum tax and require exporters to compute normal taxable income/loss and pay incremental tax if necessary.

Exporters are also now liable for super tax, and 1 percent advance tax is also being collected from direct exporters. Returning to the previous full and final regime and removing the 0.25 percent Export Development Surcharge (EDS) will ease the otherwise squeezed cash flow for exporters.

Value-added exports: Businesses need to move beyond basic exports and look to value-added production. Focusing largely on exporting yarn, for example, will not transform our economy. We need to adapt now and fast.

If the Government acts on these reforms, Pakistan will see a rapid and meaningful economic improvement and investments will automatically follow. For once, let us hope that the Government listens to what the business community is asking “adapt and fix it”.

Copyright Business Recorder, 2025