Economic risks remain high despite policy calm

Despite relative calm on the policy front, Pakistan's economy continues to face serious risks stemming from both global and domestic challenges, industry leaders warned on Wednesday, urging the government to act with realism, transparency and urgency to protect the fragile recovery achieved so far.

Pakistan Industrial and Traders Associations Front (PIAF) Patron-in-Chief Mian Sohail Nisar said that economic vulnerabilities remain elevated due to geopolitical tensions and unresolved local issues, while delays in reforms are increasing pressure on the system. "Many risks linked to the economy are still at a high level, including geopolitical tensions and domestic issues. Pressure from policy relaxation and delays in reforms persists, which could damage the progress made so far, therefore, policies must be framed with great care and deliberation."

His remarks come at a time when Pakistan is struggling to balance fiscal discipline with growth. While inflation has eased from last year's peak but its trickle-down effects are not visible until now, eroding purchasing power and keeping demand subdued. The government has repeatedly stated that no mini-budget will be introduced this fiscal year, but industry circles believe revenue shortfalls could force tough decisions in the coming months.

Raising a key concern, Nisar questioned how the government would bridge the gap if tax collection falls short of targets. "It has been stated that there will be no mini-budget, but if revenues remain below the expected level, then where will the shortfall be covered from?" he asked, stressing that honest assessment and realistic planning are essential to avoid shocks later in the year. According to official budget documents, the federal government has set an ambitious revenue target of Rs14.13 trillion for FY26, largely dependent on indirect taxes and improved compliance. However, past trends show that revenue slippages are common, especially when economic activity slows or enforcement weakens.

Economists warn that any major shortfall could either widen the fiscal deficit or force abrupt taxation measures, hurting businesses and consumers alike. Nisar emphasised that better governance and stronger oversight mechanisms are critical to reducing fiscal leakages. He called for improvements in the risk monitoring framework for public-private partnerships, noting that weak oversight often leads to cost overruns and inefficiencies.

He also urged the government to seriously implement its corruption and governance diagnostic action plan, particularly in the 10 major departments considered most vulnerable to corruption risks. Industry representatives argue that corruption and poor governance continue to drain public finances. Estimates by policy experts suggest that tax leakages and inefficiencies cost the national exchequer trillions of rupees annually, limiting the state's ability to invest in health care, education and infrastructure.

Another major concern highlighted by the business community is the rising cost of running the government itself. They stressed that expenditures of ministries and departments must be reduced in real terms, rather than relying solely on new taxes.

They also criticised delays in addressing the issue of loss-making state-owned enterprises, many of which collectively incur losses of hundreds of billions of rupees every year.

"Indecision on reforms is becoming costlier than taking politically difficult steps; every year, loss-making state-owned enterprises drain scarce public resources, while committees are formed instead of making hard decisions. Immediate privatisation or restructuring is necessary, otherwise the burden will continue to fall on taxpayers and productive sectors," remarked Ahsan Sheikh, another industrialist.

He added that without controlling wasteful spending and improving governance, even improved revenue collection would not be enough to stabilise the economy in the long run.

He stressed that consistent policies and timely reforms are essential to restore investor confidence and unlock sustainable growth. "Avoiding difficult decisions today could lead to harsher adjustments tomorrow, undermining economic stability and growth prospects," Sheikh added.