Pakonomics: lived reality not fiction

Pakonomics encircles harmonic disorder of Pakistan's economic system, whose dysfunctional components synchronise and produce a vulnerable future, leading to inevitable reckoning. Apathetic, we continue with underlying self-serving structure that refuses to change, following the path of least resistance, managing and moving on.

The outcome is economic stagnation in a low-income equilibrium under a consumption growth model, while stuck in a paradox: growth pitted against a population-growth cycle. Over the last 25 years (FY01 to FY25), GDP growth averaged 3.9% – a rate neutralised by 2.5% annual population expansion, leaving average per capita growth stagnant at 1.4% (whereas 5-7% is needed for sustainable development), with per capita income rising from $689 to $1,751 by FY25. It edges up to $1,901 in FY26, nearly half that of India and Bangladesh.

A deeper look at the economic frame points to persistent mechanical constraints. The economy remained reliant on land-constrained agriculture, yet the sector's share declined from an average of 25.6% (FY01 to FY25), slipping to 23.4% of GDP in FY26. Industry remained stuck in low-value production, averaging 18.8%, with stagnation at 18.1% of GDP in FY26, while high-tech activity remains marginal. Together, agriculture and industry account for less than half of GDP, whereas services continue to dominate the economy, averaging 55.7% over the same period, rising to 58.4% of GDP in FY26.

This trajectory reflects that the core economic engine stays nearly paralysed. We avoided entrepreneurial risk in manufacturing and high-tech markets to produce high-value products, which reflects inefficient use of capital. This deindustrialisation pushes workers into a low-value informal economy, translating into productivity levels far below global total factor productivity averages, while a military-commercial complex spanning industry and services further crowded out private enterprise.

Rather than confronting these obstacles, Pakistan repeatedly defers them, falling far behind lower-middle-income-country peers that successfully diversified and achieved progress. We uphold the system through administrative procedures, micro-fiscal controls, adjusted development paths, stabilisation of trade and industry and monthly 'band-aid' firefighting to avert a default caused by trade imbalances. Above all, we fill the central bank with borrowed money to create artificial solvency, further shouldering an escalating debt burden. All of this is treated as business as usual.

This structural paralysis inevitably cripples the state's fiscal capacity. While the government is starved for cash, layers of massive financial leakages prevail off-budget without remorse, including SOE and power losses, climate damage, elite capture and corruption. Trillions of rupees never reach the treasury, further shrinking the base for development.

Weak economic earnings are managed through credit, entrenching Pakistan's precarious habit of conspicuous spending and wasteful government expenditure, complemented by the mega-funding of low-productivity, import-based assets. This builds debt without building repayment capacity. Meanwhile, average inflation has remained historically high at 9% over the last 25 years - with periodic spikes twice as high - while interest rates remain high at 10.74%, occasionally reaching double this rate. Rising business costs and government-induced capital shortages inevitably squeeze new ventures.

Pakistan ran a fiscal deficit averaging 5.57% of GDP over the 25 years (MoF data) that expanded public debt from Rs3.5 trillion in FY01 to Rs80.5 trillion in FY25, further inflated by the currency devaluation. The deficit is higher than global benchmark of 3% required for a balanced and non-inflationary economy.

When we break down income and expenditure within the operational framework over the last 25 years, for every Rs100 the state collects, provinces take Rs39, and the federal government retains a net revenue of only Rs61. This triad - debt service (Rs64), defence (Rs34), and pensions (Rs9) - totals Rs108, already exceeding cash on hand by Rs8 before a single rupee reaches governance, subsidies, social protection or development. This tipping point came in FY11, when the triad first exceeded total cash on hand, and has since deepened into a permanent deficit. To meet all its obligations, the government had to borrow, on average, Rs70 in addition to the Rs61 it actually retained. In FY26, the underlying structure remains broken; only the intensity changes.

This fiscal strangulation exposes the government's baseline insolvency, nullifying the popular argument of a lack of fiscal space - because there is none to begin with. This insolvency translates into deprivation on the ground, and projections for FY27 indicate further deterioration. Development and relief subsidies will be cut back, directly affecting the masses who already suffer from a high cost of living. This leaves little hope for the 44.7% of the population facing stress-level poverty (below $4.20/day), amid the highest unemployment in decades at 7.1%, alongside child stunting affecting 40.2% of children under five. Inequality is also mounting: the top 10% earn 42% of the national income - against the 19% earned by the bottom 50% - while retaining 59% of the national wealth.

To understand Pakonomics, we should confront common questions: Why has economic growth plateaued? Why is policy making opaque? Why do structural reforms remain stalled? Why do anti-export biases persist? Why is production cost high? Why is tax base so narrow? Why do real estate and large trading houses escape taxation? Why has the country failed to attract foreign investment despite continuous rebranding? Why does informal economy flourish while formal local enterprises decline and foreign companies exit? Why are socio-economic indicators worsening? Why is human capital eroding with an increasing brain drain? Why do we repeatedly face BOP crises and are permanently chained to IMF? Why do development plans repeatedly fail? Questions are endless.

Pakistan's socio-economic failings, illustrated here, are all well-known. This systemic disorder is worsening and losing its capacity to change. Whatever we do, results fail to materialise as 'structural paralysis' takes hold. The state is negotiating a survival mode marked by stagnation, zero development velocity and a total lack of a course-correcting template - instead, simply managing and moving on.

Where do we go from here? The solutions are known, but they are of little use to an unwilling power architecture that benefits from the status quo and has no incentive to change. Jinnah reminded us that a nation's foundational promise must ensure the well-being of the masses. Until Pakistan honours this promise, Pakonomics remains a harsh reality, not fiction.