Our ‘Groundhog Day’ policies

Pakistan’s economic failure is often described as a failure to liberalize, to export, or to industrialize properly. These explanations miss the deeper continuity.

The problem is not that reform did not happen. The problem is that reform keeps reproducing the same incentives, decade after decade. Pakistan’s political economy is stuck in a policy version of Groundhog Day—every morning begins with new slogans, but the same inward-looking outcomes.

Import substitution was only the opening act. What followed was not its dismantling but its reinvention. Across regimes and ideologies, the Pakistani state repeatedly chose to protect domestic profit opportunities rather than expose capital to global competition. The vocabulary changed—from planning to markets, from nationalization to privatization—but the structure did not. The state never stopped manufacturing inward rents.

Early industrialization created business elites through licenses, subsidized credit, cheap land, controlled inputs, and tariff walls—not through productivity or exports. Pakistani research has documented how this produced concentration without competitiveness. Fertilizer survived for decades on subsidized gas and price protection without export discipline. Sugar entrenched itself through water subsidies, captive procurement, trade protection, and periodic bailouts, despite chronic inefficiency. These were never temporary distortions. They became permanent political settlements embedded in the economy.

Privatization was meant to break this logic. In the 1990s, banks and industrial units were sold under the banner of reform. Yet privatization did not produce an export-oriented capitalist class. It produced an elite that learned a different lesson: the state would continue to create protected domestic profit streams even after formally stepping back. Privatized banks did not finance industrial upgrading or exports. They became rent collectors on government paper, gatekeepers of protected markets, and partners in patronage networks. Control shifted from bureaucrats to insiders, but global discipline never arrived.

Nowhere is this clearer than in energy. Pakistan did not build power capacity through competition or cost discovery. It built it through state-guaranteed contracts. Independent Power Producers were insulated from demand risk, exchange-rate risk, and efficiency risk, backed by sovereign guarantees. Pakistani audits and research have repeatedly shown how this locked capital into guaranteed domestic annuities rather than productivity-enhancing investment. The result was not competitiveness but circular debt. This was not market failure. It was policy-designed rent extraction.

Even during proclaimed liberalization, new inward shelters kept appearing. Large business groups that should have specialized and moved outward were encouraged to enter car imports and protected assembly rather than car exports. The same pattern repeated in the 2020s with mobile phones. Taxes on imported devices, computers, and tablets were raised, while incentives were created for low-value domestic assembly. Capital flowed exactly where policy pointed it—into protected local activity with minimal learning—while freelancers, digital workers, and consumers bore the cost. Pakistani productivity research is clear: this creates activity, not competitiveness, and deepens dependence on imported inputs.

Today’s SOE privatization drive is simply the latest replay of the same script. Consider Pakistan International Airlines. PIA’s collapse is the result of decades of bureaucratic control to facilitate political interference, overstaffing, distorted incentives, and bureaucratic control. Yet the proposed solution once again relies on discretionary privatization, limited transparency, and government-to-Seth transfer rather than open listing, public disclosure, or broad ownership through capital markets. The same economy that forced citizens to absorb PIA’s losses through taxes and inflation now asks them to stand aside while its upside is handed over quietly.

This is Groundhog Day economics. State failure creates losses for the public. “Reform” socializes the pain and privatizes the recovery. Capital is again pushed inward to clean up bureaucratic wreckage—while ordinary citizens are confined to bank deposits eroded by inflation and repeated demands to lower interest rates for “growth” to force depositors to finance seths.

What is more surprising is the role of International Monetary Fund. As the global custodian of openness, competition, and market discipline, one would expect it to push hard against this inward-looking political economy. Instead, IMF programmes in Pakistan have largely focused on raising revenue quickly—through higher indirect taxes, import duties, and administrative measures—rather than dismantling protection or forcing capital outward.

The result is perverse. Higher tariffs and trade taxes hurt consumers, raise input costs, and suppress exports, while protecting the same domestic incumbents that thrive behind tariff walls. Revenue mobilization becomes compatible with protection, and protection becomes compatible with adjustment. The IMF does not create Pakistan’s inward rent system—but it has repeatedly adjusted around it, leaving the structure intact.

Protection, we were told, would end. It never did. Sugar, fertilizer, cement, autos—the most politically powerful sectors in Pakistan are not globally dynamic industries. They are sheltered domestic fortresses. In a developmental state, protection is temporary and conditional: export or lose support. In Pakistan, protection is permanent and political: lobby and survive. The state does not withdraw rents. It reallocates them.

The business elite – seths – responded rationally. Exporting is hard. It requires productivity, scale, innovation, and relentless exposure to global prices. Rent-seeking is easier. It requires proximity to power. When policy repeatedly offers guaranteed domestic profits—through protection, contracts, bailouts, privileged privatization, and even adjustment programs—capital does not become globally competitive by accident. It continues to look inwards.

This is why Pakistan’s balance-of-payments crisis is structural. Growth raises imports because industry depends on imported fuel and machinery. Exports do not rise proportionately because competitiveness was never built. Every growth episode ends the same way: reserves collapse, confidence breaks, and Pakistan returns to the IMF—not because reform failed, but because reform never changed the incentives.

Pakistan’s economics never feels fresh because the machinery of policymaking never changes. A banker rotates in as finance minister, civil servants double as gatekeepers, regulators, and SOE managers, while the same seths and lobbyists sit on policy committees, flanked by foreign consultants with no skin in the game and little appetite to disturb entrenched interests. This structure is designed to manage the status quo, not challenge it. As long as the state, and the adjustment framework around it, keeps recycling the same people and incentives, policy will keep replaying the same economic day. Until capital is forced to compete globally rather than protected at home, Pakistan will not become an exporting economy. You cannot export your way forward when your political economy keeps waking up to the same incentives.

Copyright Business Recorder, 2026