After years of economic challenges, Pakistan is finally starting to see signs of recovery. The country is on a more stable economic path, with growth picking up, inflation easing, and the exchange rate stabilizing. Perhaps most encouragingly, foreign reserves have more than doubled in recent months, a remarkable achievement given the tough conditions Pakistan faced just a year ago. This turnaround is a testament to the hard work of both the caretaker and newly elected governments, as well as the State Bank of Pakistan (SBP), in managing the economy with care and determination. While the situation has improved, the real challenge now is ensuring that this recovery leads to long-term growth that benefits everyone in the country.

Pakistan has been stuck in cycles of boom and bust in the past. During times of relative stability, short-term measures like subsidies, stimulus packages, and heavy state intervention were used to boost growth. However, these solutions only provided temporary relief and often failed to address the deeper, structural issues within the economy. Without meaningful reform, the cycle of growth followed by stagnation and rising debt continued. This time, however, the government is focused on breaking that cycle and building a stronger, more sustainable economy for the future.

No quick fixes, departure from past practices

The government’s approach is straightforward: Pakistan can’t rely on quick fixes anymore. Lasting growth requires deep, structural changes that focus on productivity, competitiveness, and private sector growth. This new economic strategy, which is supported by Pakistan’s home-grown reforms and the IMF’s Extended Fund Facility (EFF), is a departure from past practices. Instead of turning to state intervention, the government is committed to creating an environment where market forces drive growth, private investment is encouraged, and long-term expansion is possible.

At the heart of this shift is a push to boost productivity. The government is making a concerted effort to improve the business environment by cutting red tape, simplifying regulations, and opening the door for both domestic and foreign investment. The goal is to create a place where businesses can thrive—whether they are in traditional sectors like agriculture and manufacturing or emerging industries like technology and renewable energy. This focus on creating a more competitive market will foster innovation, generate jobs, and boost exports, all of which are critical for economic prosperity.

Another key aspect of the government’s economic reform plan is overhauling Pakistan’s tax system, which has long been inefficient and inequitable. In the FY25 budget, the government made a bold move by eliminating special tax regimes for exporters and developers, bringing them under the standard corporate tax system. This is an important step toward making Pakistan’s tax system fairer and more efficient, ensuring that everyone contributes fairly to the economy. With more consistent and robust revenue collection, the government will have more resources to invest in crucial public services like education, healthcare, and infrastructure—areas that are essential for Pakistan’s long-term development.

Another major priority for the government is reforming Pakistan’s state-owned enterprises (SOEs), many of which have been a drain on public resources for years. These SOEs have often struggled to compete in the market and have consumed taxpayer money without delivering significant benefits. The government’s plan is to restructure or privatize these enterprises, freeing up capital that can be better used to foster private sector investment and create a more competitive economy.

This shift also includes modernizing Pakistan’s infrastructure and improving public services. The government is working to make public institutions more efficient, reducing the role of the state in the economy, and allowing the private sector to take the lead. This approach not only reduces inefficiencies but also fosters an environment where businesses can grow and thrive without the heavy hand of government interference.

Surge in remittances boosting foreign reserves

One of the most promising signs of Pakistan’s economic recovery is the surge in remittances. In October 2024, remittances are expected to exceed $3 billion, marking a 39% increase from the previous year. This is a clear sign that Pakistan’s overseas community is resilient, and that government efforts to channel remittances through formal channels are paying off. These remittances are an essential source of foreign exchange and play a crucial role in strengthening Pakistan’s foreign reserves, which are vital for maintaining the country’s economic stability.

Alongside remittances, Pakistan is also set to receive $500 million from the Asian Development Bank (ADB) this month, further bolstering the country’s financial position. These inflows, combined with the rise in remittances, are providing much-needed relief, giving the government more room to maneuver as it works to stabilize the economy.

Managing the country’s debt remains a priority. Pakistan has $26 billion in debt servicing obligations for FY25, but the government has already paid $5.7 billion. It hopes to roll over $14.1 billion of this debt, but a shortfall of $6.3 billion remains. While this presents a challenge, the government is exploring ways to address the gap without relying heavily on expensive, short-term loans. By carefully managing its debt and improving domestic borrowing practices, Pakistan aims to reduce its interest burden and free up more resources for development.

The government is also making progress in reforming the energy sector, which has long been a drag on the economy. High energy costs have made it difficult for businesses to compete, and have placed a heavy burden on households. By reducing energy costs and improving efficiency, the government hopes to make electricity more affordable, boost industrial output, and attract more investment to the country. Lower energy prices will also make Pakistan more competitive on the global stage, helping to position it as a more attractive destination for international investors.

Strengthening private sector, less protectionism

The government’s broader vision is to create a more competitive and dynamic economy, one that is not dependent on protectionist policies but instead thrives on innovation, competition, and efficiency. This is essential for long-term prosperity, as a competitive economy will not only generate wealth but also create jobs and improve the standard of living for ordinary Pakistanis.

Pakistan’s economic future is showing signs of promise. With rising remittances, stronger foreign inflows, and a renewed focus on economic reforms, the country is poised for long-term growth. The government is committed to reducing its reliance on borrowing, strengthening the private sector, and addressing structural challenges in areas like energy and taxation.

While there are still hurdles to overcome, there is a newfound optimism about the future. With the right mix of policies, reforms, and investment, Pakistan has the potential to build a resilient, inclusive economy that can provide better opportunities and higher living standards for its people. The road ahead won’t be easy, but with steady progress, Pakistan is well on its way to realizing its full economic potential.

(The author is a contemporary affairs analyst specialising in South Asia and working with an Islamabad-based think tank. Views are personal. She can be reached at saeedsarah088@gmail.com )