Pakistan’s economy is facing severe challenges, teetering on a make-or-break point. The current crisis is not the fault of any single government but reflects seventy years of policy and economic mismanagement. While the government touts improvements in macroeconomic indicators, the key question is whether the deeper issues of structural distortions and imbalances are being addressed. The gravity of the challenge is evident in the fact that these core problems are either unrecognized or deliberately obscured, and they are not being brought into the national discourse.
The government’s focus remains fixated on balancing financial statements rather than tackling the underlying economic challenges. This has been the approach for decades, with little remorse or reflection on past mistakes. Misdiagnosing the problem leads to ineffective remedies. If we continue treating the symptoms instead of opting for a more decisive, curative intervention, the issues will persist. Though such a solution may be more painful and difficult, it would eliminate the need for repeated short-term fixes, preventing the recurrence of crises every few years.
The government’s efforts have predominantly focused on boosting revenues to maintain fiscal stability, overburdening the documented sector with excessive taxation. It has been observed that Pakistan has reached the wrong side of the Laffer Curve for sales tax. Despite a 1% increase in the sales tax rate in February 2023, revenue has not grown by an equivalent 1% of real GDP. The rise only reflects nominal GDP growth and inflation. For the past two decades, the government’s economic policy has largely revolved around taxation measures—a regrettable situation. In a sound economic framework, taxation is merely a component of broader policy. However, in Pakistan, governance has become reliant on tariffs and taxes, lacking a comprehensive economic vision.
Pakistan’s policy narrative has been fixated on the narrow tax base and low tax-to-GDP ratio, yet there is little acknowledgement of the stark wealth and income inequality. The concentration of wealth and income among the top 50 families and the wealthiest 1% of elites is rarely discussed. There is also a glaring omission of the extractive nature of state institutions, which, as highlighted by Daron Acemoglu and his colleagues, are the root cause of national failure. This year’s Nobel Prize in Economics awarded Acemoglu, Simon Johnson, and James Robinson for empirically proving that inclusive and responsive institutions, not extractive ones, drive nations toward economic success. Pakistan’s institutions are a textbook case of elite capture, with policies and governance dominated by a powerful few. Despite this, the topic remains largely absent from our policy discussions, even among academics and economists—though some notable exceptions offer sporadic critiques.
In our fiscal policy discussions, the efficiency and effectiveness of deploying scarce economic resources are conspicuously absent. Focus has been misplaced on populist schemes like the Sasti Roti Scheme, Milk for School Children, Laptop Scheme, Ashiana Housing, Low-Cost Housing, Free Rickshaws, and Cheap Bikes. These initiatives, funded either through public finances or bank loans, have placed immense strain on both. Meanwhile, there has been no concerted effort to promote industrialization or enhance agricultural productivity, nor any political consensus on addressing the issue of State-Owned Enterprises, which are draining the public exchequer by hundreds of billions monthly.
Additionally, the efficiency of the Public Sector Development Program (PSDP) is questionable, with independent estimates suggesting waste ranging from 35% to as much as 100% on paper projects. The country’s escalating current expenditures also remain undiscussed, a silence that even prompted the resignation of a prominent left-leaning economist. The bloated size of the government is another issue missing from policy discourse. It is imperative that we critically evaluate every penny spent, trimming unnecessary expenses rather than burdening salaried individuals with excessive taxation.
Another crucial issue missing from our national policy discourse is the government’s expansive economic footprint at the national level. Overregulation, direct intervention, and participation in economic activities have severely hampered the efficient allocation of resources. The opportunity cost is immense—not only in terms of lost efficiency but also in the drain of capable human resources. Governments, by nature, are inefficient economic players and are meant to be facilitators, not job providers. We must abandon this outdated mindset, yet a debate on this matter has not even begun, let alone efforts to shape public opinion.
Additionally, the ever-growing pension liabilities of the government and public sector entities are poised to surpass current account expenditures in the near future. Ignoring these issues is no longer an option. They need to be brought into the national conversation rather than overshadowed by political point-scoring.
Our intertwined religious, social, and economic policies have wreaked havoc on the economic front, particularly in the realm of population control. All family planning and welfare programs have been abject failures. In 1971, Pakistan’s population was around 130 million, with 45% (60 million) residing in present-day Pakistan and the remaining 55% in what is now Bangladesh. Today, Pakistan’s population has surged to 240 million, while Bangladesh’s stands at 160 million, highlighting the poor execution of family planning policies in Pakistan.
With scarce resources stretched thin, improving living standards for a rapidly growing population is nearly impossible. We must urgently shift our focus to curbing this unchecked population growth to make effective use of limited economic resources. Massive investment in family planning and welfare programs is essential, yet this crucial issue remains absent from mainstream policy discussions.
Thanks to external pressures, particularly from the IMF, the rising cost of energy has recently become a focal point of national discussion. Various political parties have attempted to bring attention to the issue, whether for political gain or genuine public interest, but the impact has been felt. However, a meaningful debate on an inclusive approach to policy formulation has yet to emerge. The necessity of reviewing past energy policies to learn from previous mistakes has not been adequately highlighted. Emphasizing the importance of enhanced transparency in future energy policies remains crucial but has not been brought to the forefront.
Human development is crucial to a nation’s success, yet we have failed to foster a national narrative that prioritizes this area. Despite the devolution of health and education to the provinces, there has been no notable progress in these sectors. Pakistan remains in the low human development category, ranking 164th out of 193 countries assessed. This alarming situation demands greater attention in the national discourse.
Policy narratives are shaped not only by governments but also by academics, writers, journalists, media, public opinion forums, and think tanks, among others. As Daron Acemoglu noted, “Inclusive institutions are the foundation for long-term economic growth.” Our focus must shift from the singular emphasis on taxation and balancing fiscal accounts to broader issues like population control, reducing the government’s economic footprint, inclusive policymaking, dismantling elite capture, energy reforms, boosting agricultural output, and driving industrialization. Building inclusive institutions, rather than extractive ones, is critical. These issues must be brought into the national conversation to foster meaningful development.
N. Eashal is the author of this write-up. The author is a student of economics and can be reached for feedback at [email protected].