Pakistan – (Special Correspondent / Web Desk) – Pakistan is in a great spot to benefit from a new, more cooperative world order, as seen at the recent SCO summit. But to truly succeed, the country needs two things: political stability and a plan to fix its long-standing economic problems.
Right now, the economy is sending mixed signals. It is showing signs of recovery but is still held back by deep weaknesses. Growth in FY25 was 2.7%, which is better than last year but still below what was hoped for.
There is some good news. The economy is proving to be resilient. Growth is continuing, and the most exciting change is that inflation has dropped sharply. Average inflation fell to just 4.6% in FY25, a huge relief after the very high prices of 2023.
This stability was achieved by dramatically cutting interest rates and carefully managing the currency with support from an IMF program.
However, getting the budget under control came with a downside. The government had to slash important spending on things like roads, schools, and hospitals.
The big drop in inflation has been a major win, giving much-needed relief to families and companies in a short time. This allowed the central bank to lower interest rates, which helped people spend and businesses invest again. Stable currency rates and lower global prices also helped bring inflation down.
But this surface calm hides deeper problems that could undo the progress. The government is borrowing too much money from local banks, which leaves less money for businesses to borrow and grow.
In the last year, the government borrowed over five times more from banks than private businesses did. The budget deficit did get smaller, but this was mainly done by cutting development projects, not by finding sustainable ways to increase revenue.
This approach to balancing the books has hurt critical investments in the country’s future, like infrastructure, education, and healthcare.
There has been a dramatic positive shift in Pakistan’s dealings with other countries. The current account balance moved to a surplus in FY25, thanks to strong money sent home from abroad, a small rise in exports, and controlled imports.
Yet, Pakistan’s exports still face challenges. They are not diverse enough and are held back by poor infrastructure, complex rules, and expensive energy. The country also has a large amount of external debt to pay back. Recently, the trade deficit has grown again as imports have risen faster than exports.
A significant step forward has been made in tackling the massive circular debt problem in the power sector. The debt was contained by better bill collection and adjusting tariffs. But a lot of this fix used one-time government payments. Without real, lasting reforms to improve efficiency, the debt will likely pile up again.
New financial deals with the IMF should help with cash flow. However, these are short-term fixes. Without fundamental changes—like privatizing power companies or making tariffs market-based—the debt crisis will return.
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Perhaps the biggest challenge to keeping the economy stable is Pakistan’s weak infrastructure and governance. This was tragically highlighted by this year’s monsoon rains, which caused widespread loss of life and billions in damages to crops and infrastructure.
Pakistan is at a turning point. The economic stability gained this year provides a solid base to build on. But these improvements are fragile. The real test is not just economic; it is political. The country has proven it can make hard choices in a crisis. The next step is to continue reforms in a stable and inclusive political environment.
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