Rewiring Pakistan's growth model

Pakistan's economic policy framework is increasingly being shaped by sector-specific reforms aimed at correcting long-standing structural distortions and reviving growth. Among the most significant developments are the gradual deregulation of the sugar sector, a renewed emphasis on an ambitious agriculture export strategy, and sustained efforts to attract foreign direct investment (FDI).

These initiatives are closely interlinked and reflect a broader shift away from heavy state intervention towards market-oriented, export-driven and investment-friendly policies. While challenges remain, official data and historical experience suggest that progress in these areas could strengthen Pakistan's external position, raise productivity and generate much-needed employment.

The sugar sector has historically symbolised Pakistan's interventionist economic approach. For decades, it operated under extensive government controls, including administratively fixed sugarcane support prices, restrictions on exports and imports, regulated stock releases and recurring subsidies. Although these measures were intended to stabilise prices and protect farmers, they often produced the opposite effect.

According to the Pakistan Bureau of Statistics, sugarcane production has exhibited sharp fluctuations over the past decade, rising from 78.9 million tonnes in 2019-20 to 85.4 million tonnes in 2020-21, before falling to 75.2 million tonnes in 2021-22 and rebounding to 82.3 million tonnes in 2022-23. Such volatility has been driven not only by weather conditions but also by policy uncertainty and distorted incentives.

The sector expanded beyond economically efficient capacity. The rapid growth in the number of sugar mills, particularly during the 1990s and 2000s, was not matched by gains in productivity or competitiveness. As a result, Pakistan repeatedly faced cycles of surplus and shortage, forcing the government to subsidise exports or allow costly imports. These interventions imposed a fiscal burden and undermined trust within the supply chain, especially as delayed payments to farmers became routine. Despite being among the world's leading sugarcane producers, Pakistan failed to establish itself as a consistent exporter, with exports remaining sporadic and policy-dependent.

Recent moves towards deregulation represent an attempt to break from this legacy. By easing export restrictions and reducing direct administrative controls, policymakers aim to allow market signals to guide production and pricing decisions. The Ministry of National Food Security and Research has indicated that greater flexibility in sugar exports is intended to reduce surplus accumulation and fiscal exposure. In global comparison, the potential remains significant. According to the United States Department of Agriculture, major producers such as Brazil exported more than 25 million tonnes of sugar in 2024, while India exported over five million tonnes. Pakistan's historically negligible export presence underscores the opportunity cost of prolonged regulation. However, the transition carries short-term risks, particularly for consumers, underscoring the need for adequate buffers and transparent market oversight.

Reform of the sugar sector is closely tied to a broader reassessment of agriculture's role in Pakistan's economy. Agriculture continues to be a cornerstone of economic activity, contributing about 20.9% of GDP and employing nearly 38.5% of the labour force, according to the Pakistan Economic Survey 2024-25.

Yet its contribution to exports has remained limited, largely due to dependence on a narrow range of low-value commodities such as rice and cotton. This concentration has made export earnings vulnerable to global price cycles, climate shocks and quality constraints.

Historical trade data illustrate these vulnerabilities. Rice exports peaked at 4.3 million tonnes in 2018-19 but lost momentum in subsequent years as competition intensified and quality issues constrained access to premium markets. Cotton exports similarly declined as domestic production fell and international competitiveness eroded. These trends exposed the limitations of a commodity-centric export model and strengthened the case for diversification and value addition.

Policymakers are now promoting a more ambitious agriculture export strategy that prioritises processed foods, horticulture, meat, dairy and specialised crops. Official figures from the Pakistan Bureau of Statistics show that agricultural exports increased to approximately $3.14 billion in FY24 from $2.68 billion in FY23, indicating early gains from diversification efforts.

The government has articulated longer-term ambitions to raise agri-exports beyond $5 billion annually by the end of the decade, contingent on improvements in productivity, logistics and compliance with international standards.

A key historical constraint has been weak post-harvest infrastructure. Limited cold storage, inadequate transport facilities and poor quality certification have reduced the competitiveness of Pakistani produce in high-value markets. Current initiatives emphasise investment in cold chains, storage facilities and laboratories aligned with international sanitary and phyto-sanitary requirements. These steps reflect lessons from past initiatives that faltered due to infrastructure gaps and inconsistent coordination between federal and provincial authorities.

Foreign direct investment is a critical enabler of this transformation. Pakistan's FDI experience has been uneven, closely tracking macroeconomic stability and policy credibility. According to the State Bank of Pakistan, FDI inflows peaked at $5.4 billion in FY08 but declined sharply in subsequent years amid political uncertainty and economic volatility. After falling to around $2.2 billion in FY23, inflows recovered modestly to about $2.8 billion in FY24, suggesting renewed but still cautious investor interest.

Recent policy efforts aim to broaden the sectoral base of FDI, with agriculture and agri-processing receiving greater attention. Initiatives such as the Special Investment Facilitation Council have been established to streamline approvals and reduce bureaucratic delays, addressing long-standing investor concerns.

Authorities are actively engaging potential investors from the Gulf, China and Southeast Asia, highlighting opportunities in corporate farming, food processing and agri-logistics. Proposed investments exceeding $500 million in refrigerated transport and processing facilities signal growing interest in export-oriented agriculture. The convergence of deregulation, export orientation and investment facilitation marks a strategic recalibration of Pakistan's growth model. Historical experience suggests that partial reforms and policy reversals undermine credibility and deter long-term investment.

To avoid repeating past mistakes, reforms must be sustained, transparent and supported by complementary measures, including access to credit, crop insurance and extension services for small farmers. Without these safeguards, the social and political sustainability of reforms could be compromised. Sectoral developments in sugar deregulation, agriculture exports and foreign investment attraction reflect an effort to correct deep-rooted inefficiencies and unlock Pakistan's economic potential. While the transition entails risks, the costs of inaction are far greater.

If reforms are implemented consistently and supported by institutional capacity, these shifts could strengthen export performance, stabilise external accounts and lay the foundation for more inclusive and resilient growth.

THE WRITER IS A MEMBER OF THE PAKISTAN ENGINEERING COUNCIL AND HOLDS A MASTER'S DEGREE IN ENGINEERING