Schrödinger’s Cat and Pakistan’s Economy: Alive, dead, or both?

Pakistan’s economy is in flux, showing signs of life but facing challenges that keep it uncertain.

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Imagine a cat in a sealed box, both alive and dead at the same time—Schrödinger’s famous thought experiment in quantum mechanics. Now replace the cat with Pakistan’s economy, and you have a paradox that would make even Erwin Schrödinger scratch his head.

Is Pakistan’s economy thriving, or is it a mirage of temporary improvements? Like the metaphorical box, the truth only reveals itself once we look deeper. On the surface, Pakistan’s economy seems to be showing signs of life. Inflation, which was roaring just months ago, has started to ease, particularly in food prices.

In November 2024, inflation dropped sharply to 4.9%, down from over 30% in 2023, providing relief to households that have struggled with sky-high grocery bills.
From a broader perspective, fiscal and external accounts appear to be turning a corner. The government’s disciplined spending has led to a primary surplus, a feat that many developing economies struggle to achieve.

The current account has posted a surplus for three consecutive months, indicating improved external balances. Foreign exchange reserves have crossed $12 billion for the first time in over two years, reaching $12.04 billion in November 2024, reducing immediate fears of default.
There’s even talk of Pakistan re-entering the MSCI Emerging Markets Index, which could bring much-needed foreign portfolio investments.

The stock market has responded with renewed enthusiasm, with the benchmark share index hitting a lifetime high following the IMF’s approval of a $7 billion bailout deal.
Corporate Pakistan, despite the recent turmoil, is cautiously optimistic. Banks have reported soaring profits, with some of the highest returns in Asia, due to high-interest rates and increased government borrowing.

The technology sector has attracted international venture capital, signalling confidence in the country’s young talent pool. Agricultural reforms, including better irrigation and the introduction of high-yield seeds, are starting to pay off. In the FMCG sector, multinationals are reporting growth as consumer demand begins to recover. Meanwhile, automotive assemblers and manufacturers are ramping up production after a prolonged slump.

But here’s the twist: Schrödinger’s cat is still in the box. Is this economic revival genuinely sustainable, or is it a temporary high? Much of the current stability hinges on policy measures that are inherently short-term. Import restrictions and remittance inflows have propped up reserves, but what happens when those restrictions are lifted? Is the economy fundamentally stronger, or are we just seeing a Band-Aid over a deep wound?

Debt remains the elephant—or perhaps the tiger—in the room. Pakistan’s external debt obligations are massive, requiring substantial foreign exchange outflows. Without consistent export growth or foreign direct investment (FDI), the current account surplus could quickly vanish. The energy sector, despite progress in renewable projects, still struggles with circular debt and over-reliance on imported fuels, making it vulnerable to global shocks.

And let’s not forget the perpetual wild card: politics. Policy consistency and investor confidence often take a backseat to political turmoil. In a country where ministers change faster than seasons, long-term economic planning is easier said than done.

So, what’s the way forward for Pakistan’s Schrödinger economy? To truly open the box and find a thriving economy inside, Pakistan must shift from firefighting to systemic reform. Exports need to diversify beyond textiles—IT services, for instance, hold enormous untapped potential. Investment in renewable energy and domestic resources can reduce the dependency on volatile global fuel markets.
The tax system needs a complete overhaul.

Broadening the tax base by formalizing the informal economy is crucial. Digitization of tax processes has started, but enforcement and trust-building with businesses remain key. Regional trade offers another lifeline. Strengthening trade with Afghanistan, Central Asia, and even India could open up new economic corridors and stabilize supply chains.

Pakistan must also tackle inefficiencies in state-owned enterprises, which continue to bleed the exchequer. Privatization or restructuring, though politically sensitive, could reduce fiscal drag. Finally, political and institutional stability cannot be overstated. A consistent policy framework and good governance are critical to unlocking the country’s potential.

As of now, Pakistan’s economy remains in a superposition—alive, dead, or somewhere in between. The current signs are hopeful, but as any physicist—or economist—would tell you, the true state only reveals itself with time, data, and bold action. Until then, Schrödinger’s cat, or rather Pakistan’s economy, keeps us guessing.