Industry flags risks to 2026 growth

Warns ease of doing business, cost reduction remain unaddressed despite pledges

LAHORE:

As 2025 nears its end, the country is looking towards 2026 with growing concern within industrial and commercial circles that high costs, weak competitiveness and policy uncertainty could further slow economic momentum unless decisive steps are taken to support productive sectors. Business leaders say that while macroeconomic stability has improved compared to previous years, conditions on the ground remain challenging for industry, exporters and investors.

Speaking on the state of the economy, Khawaja Mehboob ur Rehman, president of the Pakistan Business Forum (PBF), said 2025 had again proved to be a difficult year for businesses. "Despite repeated commitments, the core issues of ease of doing business and a sustainable reduction in the cost of operations have not been addressed in a meaningful way," he said in a letter written to the Prime Minister of Pakistan, adding that this had limited the ability of firms to plan and expand.

Industry representatives also point to persistently high input costs as a major hurdle. Electricity tariffs, fuel prices, taxes and financing costs continue to place pressure on manufacturing and export-oriented sectors. According to official data, industrial electricity tariffs in Pakistan remain significantly higher than those in several regional economies, while exporters face thin margins amid intense global competition. Economists note that although Pakistan's exports showed some recovery in FY2024-25, growth remained modest compared to regional peers that benefit from cheaper energy and targeted industrial support.

Rehman warned that high energy costs were directly undermining productivity and export competitiveness. "These pressures are eroding our ability to compete with regional economies that actively support their industries through competitive pricing and pro-growth fiscal policies," he said. He also expressed concern over reports that electricity tariffs could rise further as part of efforts to address the country's circular debt problem, cautioning that such a move could force many industrial units to downsize or shut down operations.

The issue of energy pricing has become particularly sensitive as industries struggle to recover from years of volatility. Data from the power sector shows that energy already accounts for a large share of production costs in textiles, engineering and chemicals - sectors that collectively employ millions of workers. Any sharp increase, analysts warn, could worsen unemployment at a time when job creation is already under strain.

Beyond costs, business leaders have also questioned the broader direction of economic policymaking. Rehman argued that current policies appear overly focused on meeting International Monetary Fund (IMF) programme conditions, with limited space for innovative and growth-oriented solutions. "Sustainable recovery cannot be achieved without empowering the business community, which remains the backbone of employment, exports and revenue generation," he said.

At the same time, some independent voices within the private sector stress the need for balance between fiscal discipline and growth. Rameez Ahmed, a mid-scale manufacturer, said structural reforms were necessary but must be implemented in consultation with industry. "No one is denying the need for reforms or IMF engagement," he said. "But policies designed without industry input often fail on the ground. What businesses need is predictability, competitive energy pricing and a tax system that rewards documentation and growth."

Another concern frequently raised is the limited representation of elected business leaders in newly formed economic committees and working groups. Industry representatives argue that excluding those directly involved in production and trade weakens policy effectiveness and delays implementation. They say meaningful consultation could help bridge the gap between policy objectives and market realities.

There is also a growing narrative that Pakistan must now shift focus from short-term stabilisation to longer-term competitiveness. Rehman referred to the country's response on the security front during the tensions of May 2025, saying the next challenge lies in "winning the economic battle". He stressed that businesses are willing to play their role if given a level playing field and clear signals from the top.

Businesses believe that only a credible roadmap for 2026 can help restore confidence, encourage fresh investment and support long-term planning. "Inflation has eased compared to earlier peaks and interest rates are expected to gradually normalise. Many of us believe the coming period offers an opportunity to reset policies in favour of growth - but only if cost pressures and competitiveness issues are addressed in a timely and inclusive manner," Ahmed added.