Since gaining independence in 1947, Pakistan has navigated a series of distinct economic phases, each marked by different growth patterns and political influences. These phases provide valuable insight into the structural issues that continue to impact the country’s economic trajectory today.
Historical Economic Phases
1. 1947–1972
During its early years, Pakistan experienced robust growth, averaging 6% GDP annually. However, this period ended with the nationalization of key industries—steel, chemicals, and banking – among others—under the then Prime Minister’s policy direction.This era was mostly dominated by military regimes.
2. 1972–1999
Economic growth slowed to an average of 4–5% annually. This era saw fluctuating leadership between military and civilian governments, with inconsistent economic policies and reforms.
3. 1999–2019 (Pre-COVID Era)
Pakistan’s economy averages a growth rate of approximately 4.4% annually. While stable at times, the growth remained vulnerable to external shocks and policy inconsistencies. This era, too, consisted of both civil and military governments.
Current Economic Landscape
From 2019 to date, under continuous civilian rule, Pakistan’s growth has decelerated further to around 2.5% annually.
Although occasional spikes—ranging up to the growth to over 8 to 9%—have occurred in the last seven decades, these have typically resulted primarily from temporary inflows of foreign exchange rather than sustainable structural improvements.
Key Economic Challenges
As a practitioner in business and industry and a student of economics, I believe the following core challenges must be addressed to set Pakistan on a path toward long-term economic stability:
1. Law and Order
The enduring impact of regional conflict, particularly since the Soviet invasion of Afghanistan, has destabilized law and order. This instability has deterred investment and hindered economic activity.
2. Inefficient Justice System
Pakistan’s judicial processes are slow and cumbersome, often resulting in delayed and costly outcomes. This undermines investor confidence and economic efficiency.
3. Political Instability
Hereditary and factional politics have stifled the development of mature political parties with pragmatic, long-term economic agendas. Policy inconsistency remains a major hurdle to sustained economic planning along with a lack of transparency and accountability.
4. Weak Institutions and Bureaucracy
Politicization, red tape, and entrenched corrupt practices without potent accountability have eroded the strength and credibility of public institutions, discouraging both local and foreign investors. Although few exceptions do exist.
5. Ongoing Conflict with India
Long-standing tensions, especially over Kashmir and now water issues, have led to frequent military confrontations and substantial defence spending, diverting funds from essential economic development. And deprived the dividend of peace in the region directly hammering economic activities and growth.
6. State Involvement in Commercial Sectors
Government control over key sectors—including power and energy, fertilizers, shipping, and railway, among many other —has hindered private sector growth. Many state-run enterprises operate inefficiently and at significant losses.
7. Sectoral Disparities and Subsidies
Favouritism in the form of selective subsidies and tax exemptions has distorted competition across sectors. This imbalance makes Pakistan’s products less competitive internationally.
8. Twin Deficits
Persistent fiscal and trade deficits (current account) have led to recurring currency depreciation. The unpredictable exchange rate environment hampers business feasibility and investor planning.
9. Rising Public Debt
Over the past two decades, Pakistan’s debt burden has escalated, leading to higher taxation and bureaucratic complexity. Continuous surge in current expenditures without visible austerity drive discourages new entrants into the formal economy and fuels corruption.
10. Smuggling and the Informal Economy
The prevalence of smuggling and an expansive undocumented economy undermines formal businesses and disrupts fair competition.
11. Weak Economic Fundamentals
High inflation, high poverty level, slow and nominal increase in per capita income in the region, a burdensome cost of doing business, and poor export competitiveness are symptoms of deep-rooted structural flaws, which create a self-reinforcing cycle of economic instability.
The Path Forward
Unless Pakistan’s leadership takes decisive action to address these systemic issues, both foreign direct investment and domestic industrial investment will remain out of reach. Reforms must focus on improving governance, ensuring the rule of law, strengthening institutions, depoliticizing bureaucracy, and establishing long-term economic strategies rooted in regional stability and fairness.
Conclusion
Economic revival is not out of reach—but it requires bold, transparent, and sustained reforms. Only then can Pakistan unlock its full economic potential and secure a prosperous future for its citizens.
(The author is: chairman of Taxpayers Alliance of Pakistan, member board of directors in Sanober Institute Islamabad an independent think tank, and former president of RCCI).
