Economic stability faces scrutiny amid unresolved structural issues

After months of improved macroeconomic indicators and relative calm in currency and inflation markets, Pakistan's business community is raising questions about whether the current phase of economic stability can translate into long-term growth. While headline numbers suggest improvement, industrialists argue that deep structural weaknesses remain unaddressed and could resurface once external support eases.

Pakistan Industry and Traders Association Front (PIAF) Chairman Syed Mehmood Ghaznavi said that despite recent fiscal inflows and improved reserves, the country continues to face high interest-related expenditures that are draining public finances. He noted that the apparent fiscal relief has largely been achieved through tough conditions imposed under the International Monetary Fund (IMF) programme rather than through home-grown and sustainable economic reforms.

"Annual improvement may look real on paper, but it is still unclear whether this stability will last," Ghaznavi said, adding that Pakistan's interest payments remain among the biggest pressures on the federal budget. In the ongoing fiscal year, interest payments are estimated to consume over 50% of federal revenues, leaving limited space for development spending and social protection.

He pointed out that over the last three years, Pakistan has repeatedly experienced a disconnect between stabilisation and growth. While stabilisation measures helped control inflation, down from above 35% in mid-2023 to around 5.6% in December 2025, and stabilised foreign exchange reserves at over $21 billion, economic growth has remained subdued. GDP growth for FY26 is estimated at around 2.5%, far below the level required to absorb new entrants into the labour force.

According to the PIAF chairman, the core challenge lies in unresolved structural issues. "Overall numbers may be improving, but the real work remains the same," he said. These include broadening the tax base, reforming loss-making state-owned enterprises, rationalising untargeted subsidies, improving energy sector efficiency, and streamlining regulatory systems that discourage investment.

Pakistan's tax-to-GDP ratio has shown improvement, reaching 15.7% in FY25, surpassing India's 11.7% and Bangladesh's 7.5%. However, circular debt in the power sector remains around Rs1.8 trillion, continuing to pressure public finances and industrial energy tariffs. Ghaznavi warned that without addressing these weaknesses, private investment and productive capacity would continue to suffer.

Another industrialist, Waseem Malik, said stabilisation achieved through austerity alone could not sustain an economy of Pakistan's size. "We have controlled demand, but we have not created conditions for expansion," he said. Malik argued that although interest rates have declined over time, they have still virtually frozen industrial borrowing, while exporters face high energy and logistics costs that undermine competitiveness.

He stressed that unless policymakers shift focus from short-term stabilisation to medium-term growth planning, Pakistan risks repeating the boom-and-bust cycle. "Every IMF programme buys us time, but it does not buy us growth unless we fix governance and productivity," he said.

Ghaznavi emphasised that the true test of current stabilisation would become clear by the end of the fiscal year, when it could be assessed whether the economy is moving toward sustainable growth. He also called for monthly national-level meetings involving all economic stakeholders to review government measures, assess their impact, and shape a coherent forward-looking economic strategy. "Without such coordination and reform momentum, stability may remain fragile, offering temporary relief but no durable economic turnaround," he added.