The Pakistan Economic Survey for FY25 tells a story of recovery. Inflation has slowed, the current account recorded a surplus of $1.2 billion in the first 10 months, and GDP is projected to grow by 3.6 per cent. On paper, the macro picture appears steadier than it has in years and the finance minister might be justified in calling this “fantastic growth” a proof of fiscal discipline. The subtext is clear: stabilisation has been achieved, and the government is now poised to pivot to growth.
This story is compelling. Yet it remains incomplete.
In recent months, demand has remained suppressed, with imports throttled and industry deprived of key inputs. Large-scale manufacturing contracted by 2.4 per cent year-on-year, even as headline inflation dropped to a record low. Exports, stuck around $30 billion annually, have failed to diversify or move up the value chain. Real wages declined by 6.4 per cent in urban areas during the same period. That the government sees progress is not the issue. The real question is whether it understands what that progress has cost.
If growth does return, it will be shallow unless these structural constraints are confronted. The weaknesses are long known: overreliance on low-value textiles, a tax regime that penalises compliance, and an energy sector that leaks capital and credibility. Much more than political statements, fixing them demands confronting entrenched interests that profit from the status quo.
The upcoming budget will test this resolve. Understandably, the temptation will be to offer relief without restructuring. However, the cost of avoiding reform is now harder to disguise. In FY25, Pakistan will spend four times more on interest payments (Rs 8.3 trillion) than on federal development (Rs 2.1 trillion). Indirect taxes make up 64 per cent of total revenue, while sectors like real estate, agriculture, and wholesale trade remain disproportionately under-taxed. The Sharif cabinet would do well to recognise that this imbalance, sustained through loopholes, exemptions, and silence, cannot coexist with lasting growth. Fiscal consolidation cannot succeed without a rewritten political contract. This means ending preferential treatment for agriculture and retail cartels. It also means shielding the development budget from becoming the adjustment variable each time targets fall short. The state cannot fund investment if it taxes only consumption. It cannot unlock exports while protecting inefficiency. And it cannot grow formal employment if entrepreneurs are pushed into informality through complexity and fear.
There are some signals of reform. The budget may shift some burden away from salaried earners. A reduction in peak electricity tariffs has been proposed and revenue authorities are painstakingly digitising enforcement. What, nonetheless, remains unclear is whether they form part of a coherent model or merely compensate for the lack of one. *