Digital hope amid economic gloom in Pakistan

Pakistan's technology sector is being celebrated as a rare bright spot in a struggling economy, with officials touting rising IT exports as evidence of digital transformation. Yet beneath the fanfare, questions linger: is this truly the beginning of a sustained economic shift, or just another fleeting boom vulnerable to the country's chronic structural weaknesses?

According to the State Bank of Pakistan (SBP), IT and IT-enabled services (ITES) exports crossed $3.2 billion in FY2024, marking a year-on-year increase of over 20%. This growth places IT among the fastest-rising contributors to Pakistan's foreign exchange earnings, trailing only textiles and remittances. Government projections are even more optimistic, with targets of $5 billion by 2026.

The sector's appeal lies in its low capital intensity and strong demographic base. Over 60% of Pakistan's population is under 30, and tens of thousands of young people have flocked to digital skills training, freelancing platforms, and software development. Pakistan consistently ranks among the top five countries on global gig economy platforms, competing with larger markets despite limited infrastructure.

This is not the first time Pakistan has seen promise in IT. In the early 2000s, policymakers announced ambitious plans to transform the country into a regional hub for outsourcing. But those ambitions stalled due to political instability, inconsistent regulation, and a lack of large-scale industry champions. The current moment, therefore, is being viewed with cautious optimism: there is evidence of momentum, but history warns of fragility.

Pakistan's IT exports are heavily concentrated in freelance and small-scale outsourcing. Call centres, coding contracts, and digital design services form the bulk of revenues. Roughly two-thirds of these earnings come from North American clients, making the industry vulnerable to external shocks – whether economic slowdowns, currency fluctuations, or tightening data protection regulations.

"The growth is real, but fragile," says a Lahore-based entrepreneur who runs a mid-sized software house. "We are still overly reliant on individual freelancers and small agencies. Without nurturing large firms, building R&D capacity, and ensuring policy consistency, Pakistan will remain stuck in the low-value segment of the global digital economy."

India's IT exports – now exceeding $200 billion – are diversified across markets in North America, Europe, and East Asia, while Bangladesh has surpassed $5 billion with a balanced mix of freelance and structured outsourcing programmes. Pakistan, by contrast, remains narrow in both geography and service range.

The government has sought to harness this boom through a mix of incentives and reforms. Tax exemptions for IT exporters, relaxed foreign currency retention rules, and pledges to expand broadband infrastructure have all been announced in recent years. Dedicated technology parks are being planned in Karachi, Lahore, and Islamabad to attract multinational companies and nurture start-ups.

But implementation remains inconsistent. Frequent changes in taxation policy, delayed refunds, and sudden restrictions on internet services – sometimes imposed for political or security reasons – have undermined investor confidence. The absence of internationally recognised payment gateways such as PayPal continues to force freelancers into costly and inefficient alternatives.

Pakistan's education system struggles to produce the depth of talent required to compete with regional peers. While coding boot camps and online platforms have created entry-level workers, universities have not kept pace with global standards in advanced computer science, data analytics, or artificial intelligence. "We have a broad base, but not enough specialists," notes a professor at the National University of Sciences and Technology (NUST). "That limits our ability to move up the value chain."

Beyond policy uncertainty, the sector faces familiar structural challenges. Unreliable internet infrastructure, chronic energy shortages, and bureaucratic red tape continue to frustrate businesses. The lack of strong intellectual property (IP) protection discourages innovation and deters foreign firms from relocating sensitive projects to Pakistan. Courts remain slow in resolving commercial disputes, further eroding confidence.

Another issue is brain drain. Skilled professionals often migrate to the Gulf, Europe, or North America in search of stability and higher incomes. Ironically, many continue to contribute to Pakistan's IT exports remotely, but their long-term relocation deprives the domestic ecosystem of mentors, entrepreneurs, and institutional builders.

Despite these obstacles, the upside potential is significant. A stronger IT export base could help reduce Pakistan's chronic current account deficits by bringing in stable, dollar-based revenues. Unlike traditional manufacturing, IT requires relatively low imports, making it a net positive for foreign exchange.

The sector also generates high-paying jobs for young professionals, offering an alternative to the saturated textile and agriculture sectors. With wages in IT often several times higher than traditional industries, the multiplier effect extends to housing, retail, and services. Supporting industries such as fintech, e-commerce, and digital marketing are already benefiting from the sector's expansion.

Exporters in the textile sector, which still accounts for nearly 60% of Pakistan's exports, see IT as complementary rather than competitive. Improved digital platforms help streamline supply chains, enhance e-commerce outreach, and integrate Pakistani firms into global value chains.

Regional peers provide instructive lessons. Bangladesh, once considered behind Pakistan in IT development, now earns more than $5 billion in IT exports by combining a low-cost freelancing model with structured government support. Dhaka has invested in IT parks, stable taxation policies, and international marketing campaigns, positioning itself as a reliable outsourcing hub.

India's trajectory is even more striking. From the 1990s onward, India nurtured large-scale IT companies, fostered partnerships with Western clients, and gradually climbed the value chain into software products, cloud services, and artificial intelligence. Today, Indian firms compete not just on price, but on innovation.

Vietnam too has emerged as a rising star, leveraging political stability, favourable trade policies, and aggressive skills training programmes to attract global giants such as Samsung and Intel.

Pakistan's challenge lies in moving beyond gig work to structured, scalable models. This requires policy continuity, large-scale investment, and strong collaboration between government, academia, and industry.

The global context could both help and hinder Pakistan's ambitions. The shift to remote work during the Covid-19 pandemic significantly boosted demand for freelancers worldwide, providing Pakistan with a timely entry point. However, as U.S.-China rivalry intensifies, data security and compliance are becoming critical. Countries lacking robust digital laws risk exclusion from lucrative markets.

THE WRITER IS A MEMBER OF PEC AND HOLDS A MASTER'S IN ENGINEERING