OPINION: A growth model that has run its course

A nation of 250 million cannot survive on sub-4 percent growth, especially when unemployment has surged to a 21-year high of 7.1 percent and poverty, as the World Bank notes, has climbed to a staggering 44.7 percent. Pakistan’s state economic managers have finally said out loud what economists, businesses and ordinary citizens have long known: “the country’s growth model is broken”.

In separate but converging messages last week, State Bank of Pakistan (SBP) Governor Jameel Ahmad and Finance Minister Muhammad Aurangzeb admitted that stabilisation policies have become a way of life, that Pakistan’s growth trajectory is no longer viable, and that the old formula of short-lived growth spurts must end. Their candour is welcome — but it also exposes the uncomfortable truth that Pakistan has exhausted the limits of its current economic design.

For decades, Pakistan has run an economy powered by consumption, external borrowing, import dependence, and periodic IMF-driven stabilisation cycles. This model delivered brief moments of expansion — 5 percent to 6 percent growth every few years — followed inevitably by balance-of-payments (BoP) crises. Instead of reform, successive governments hit the brakes through high interest rates, suppressed imports, heavy taxation, and energy tariff hikes. Stabilisation became the default, not the exception.

Governor Ahmad’s diagnosis cuts through years of denial. Pakistan’s long-term growth has been declining: from an average of 3.9 percent over the last 30 years to 3.5 percent over two decades and down to 3.4 percent over the last five years. More troubling is the shrinking business cycle — booms are shorter, contractions more frequent, and recovery slower.

The SBP governor’s message is clear: stabilisation cannot be Pakistan’s permanent economic state. It was designed as a corrective tool, not a structural feature. Yet, Pakistan has spent more time stabilising than growing. Taxation has become extractive rather than productive; energy tariffs are raised to compensate for inefficiencies that no one fixes; and public expenditure continues to rise despite fiscal constraints. The burden falls disproportionately on businesses and households, eroding competitiveness and dampening investment.

Finance Minister Aurangzeb, meanwhile, has begun to steer the economic discourse away from rapid-fire growth targets. He acknowledges that the country cannot afford another round of 5 percent–6 percent growth financed by cheap credit, subsidised imports, or unsustainable fiscal policies. These spurts bring applause, but they also bring the next crisis. His emphasis on “steady, sustainable growth” is more realistic — and more honest — than the political rhetoric Pakistan has been fed for years.

Significantly, the finance minister reiterated that export-led growth is the only viable path. Pakistan has said this countless times, yet successive governments have constructed an economy that punishes exporters through volatile exchange rate policies, high input prices, delayed refunds, and chronic uncertainty. Export-led growth is impossible when the economy itself is inward-looking, rent-seeking and resistant to structural change.

The minister’s remark about a neighbouring country growing at 8 percent but struggling with unemployment was a subtle hint at the limits of headline GDP growth when it fails to generate broad-based prosperity. If the minister is referring to India then, the following, according to the World Bank report of October 2025, can be instructive: “Over the past decade, India has significantly reduced poverty, with extreme poverty (living on less than USD 2.15 per day) falling from 16.2 percent in 2011-12 to 2.3 per cent in 2022-23, lifting 171 million people above this line”.

The Pakistan’s own debate, he argued, is not just about higher output but about “representative growth”—growth that creates jobs, reduces inequality, and expands opportunities. This shift in narrative is important, but it requires more than statements. It requires dismantling the elite bargains that dictate economic policy.

Both officials also pointed to industrial revival as a priority, with the upcoming industrial policy expected to focus on manufacturing recovery. Yet industrial revival will remain aspirational without addressing foundational problems: high energy costs, policy inconsistency, uncompetitive tariffs, poor logistics, and a tax structure that disincentivises formalisation. Pakistan cannot industrialise when industry is punished for being documented, productive, and export-oriented.

The government’s forecast of 3.5 percent growth this year and around 4 percent over the next two to three years may be achievable if agriculture continues its recent rebound and the external sector stays stable. But breaking out of the 3 percent–4 percent trap will require real structural reforms — not cosmetic tweaks, not short-term fixes, not firefighting. Without reforms, Pakistan will remain trapped in what both the governor and the minister implicitly acknowledged: a recurring boom-and-bust cycle that is self-inflicted.

The truth beneath their statements is even starker. Pakistan’s economic crisis is not episodic; it is systemic. Stabilisation alone cannot fix governance failures, an uncompetitive economic structure, chronic fiscal indiscipline, and an elite capture of policy. Nor can sustainable growth emerge in an environment where investment is deterred by unpredictability, institutions are weak, and productivity is stagnant.

The governor is right: our current growth model cannot sustain 250 million people. And the finance minister is correct: Pakistan must not repeat the past. But recognising the problem is only the first step. The country must replace its consumption-driven, import-heavy, debt-dependent model with the one rooted in savings, investment, productivity, exports, and institutional reforms.

This is the real challenge — and the real truth behind their statements. The political class must accept that Pakistan cannot prosper without paying the price of reform. And the business community must recognise that without competitiveness, there can be no sustainable profits.

(The writer is a former President - Overseas Investors Chamber of Commerce and Industry and a noted analyst on current affairs)

Copyright Business Recorder, 2025