Pakistan’s Economic Revival: A Path Through the Storm

By Rula Gabr

Cover Image Attribute: The file photo of Islamabad's skyline with Faisal Mosque in the backdrop. / Source: Shutterstock

Pakistan is at a pivotal moment in its economic trajectory. For years, it has struggled with recurring economic fluctuations, relying on external bailouts while facing political uncertainty and deep-rooted structural challenges. Yet, as of February 2025, glimmers of hope are emerging amidst the chaos. With a population of over 240 million, abundant natural resources, and a strategic geographic position, Pakistan has the raw ingredients for an economic revival. The question is whether its leadership, institutions, and people can seize this moment to break free from the shackles of the past. The road to recovery is neither short nor easy, but it is attainable—if Pakistan can confront its challenges head-on and chart a pragmatic course forward.

The Burden of the Past

Pakistan’s economic woes are deeply rooted. Chronic fiscal deficits, a ballooning debt burden, and an overreliance on imports have long plagued the nation. By mid-2024, external debt hovered around $130 billion, with debt servicing consuming nearly 50% of the government’s revenue. The Pakistani rupee, battered by inflation and speculative pressures, has lost significant value over the past decade, driving up the cost of living for ordinary citizens. Energy shortages, circular debt in the power sector, and anemic export growth have compounded these issues, leaving the economy vulnerable to external shocks like rising global oil prices or disruptions in remittance flows from the Gulf.
Political instability has only worsened the situation. Frequent changes in government, coupled with a polarized polity, have undermined long-term planning. The International Monetary Fund (IMF) has been a recurring lifeline, with Pakistan securing its 24th bailout package in 2023. Yet, these programs often come with stringent conditions—subsidy cuts, tax hikes, and currency depreciation—that spark public discontent without addressing root causes like tax evasion or an bloated public sector. The result is a vicious cycle: short-term relief followed by deeper structural malaise.

Signs of a Turnaround

Despite this grim backdrop, there are reasons for cautious optimism. In 2024, Pakistan’s current account deficit narrowed significantly, thanks to a combination of import controls, higher remittances, and a modest uptick in exports. Textile exports, which account for over 60% of the country’s export earnings, showed resilience, buoyed by demand from Europe and North America. The China-Pakistan Economic Corridor (CPEC), a flagship of Beijing’s Belt and Road Initiative, continues to promise long-term dividends, with new investments in infrastructure and renewable energy projects gaining traction. Moreover, the government’s push toward digitalization—evident in the expansion of e-commerce and fintech—hints at a modernizing economy poised to tap into the global digital boom.
Agriculture, the backbone of Pakistan’s economy, is also showing signs of revival. Improved water management and the adoption of climate-resilient crops have boosted yields in Punjab and Sindh, while initiatives like the Kissan Card—a farmer subsidy program—have begun to stabilize rural incomes. Inflation, though still high at around 12% in early 2025, has eased from its 2023 peak of nearly 30%, offering some relief to households battered by soaring food and fuel prices.

The Roadblocks Ahead

Yet, these green shoots are fragile. Pakistan’s economic revival hinges on overcoming formidable obstacles, both domestic and global. First, the tax base remains alarmingly narrow. Less than 2% of the population pays income tax, leaving the government overly reliant on indirect taxes that disproportionately burden the poor. Elite capture—where powerful business and landowning classes evade fiscal responsibility—continues to stifle revenue generation. Without broadening the tax net, Pakistan will struggle to fund the investments in health, education, and infrastructure needed for sustainable growth.
Second, the energy crisis persists. Circular debt in the power sector has soared past PKR 2.636 trillion, driven by inefficient generation, transmission losses, and unpaid subsidies. This not only deters foreign investment but also cripples industrial productivity. The shift to renewables, while promising, is slow, and reliance on imported coal and LNG keeps the economy exposed to global price volatility.
Third, Pakistan’s export competitiveness remains weak. Unlike Bangladesh or Vietnam, which have leveraged low-cost manufacturing to dominate global markets, Pakistan has failed to diversify beyond textiles and agriculture. Bureaucratic red tape, poor ease of doing business rankings (Pakistan ranks 108th globally in 2024), and inadequate investment in skills training have kept the country from climbing the value chain.
Finally, geopolitics looms large. Tensions with India, unrest in Afghanistan, and shifting alliances in the Middle East could disrupt trade routes and remittance flows. The global economic slowdown projected for 2025, driven by tightening monetary policies in the West, could further dampen demand for Pakistani goods.

A Blueprint for Revival

Pakistan’s economic revival demands bold, concerted action across multiple fronts. The first priority must be fiscal discipline. Expanding the tax base—not just through punitive measures but by incentivizing compliance—could unlock billions in revenue. Digitizing tax collection, as seen in pilot projects in 2024, is a step in the right direction, but it must be scaled up aggressively. Simultaneously, the government should trim wasteful spending, particularly on loss-making state-owned enterprises like Pakistan International Airlines, which drain public coffers.
Energy reform is equally urgent. Privatizing distribution companies, accelerating the transition to solar and wind, and renegotiating power purchase agreements with independent producers could ease the circular debt burden. Pairing this with investments in grid modernization would ensure reliable electricity for industry and households alike.
To boost exports, Pakistan must pivot toward high-value sectors like technology and pharmaceuticals. Special economic zones under CPEC offer a platform, but they need streamlined regulations and targeted incentives to attract foreign direct investment (FDI). Skill development programs, modeled on successes in India’s IT sector, could equip Pakistan’s youthful workforce—over 60% of the population is under 30—for the jobs of tomorrow.
Agriculture, too, deserves a rethink. Modernizing irrigation, promoting agri-tech startups, and linking farmers to global supply chains could transform the sector into an export powerhouse. The government’s recent trade deal with Saudi Arabia for rice and dairy exports is a promising start, but it must be replicated elsewhere.
Finally, political stability is non-negotiable. Economic revival requires a national consensus that transcends party lines. A multi-year economic charter, endorsed by all major stakeholders, could provide the continuity needed to implement reforms. Civil-military relations, a perennial fault line, must also be recalibrated to prioritize economic security alongside traditional defense concerns.

The Global Context

Pakistan does not operate in a vacuum. Its revival must align with global trends. The shift toward green energy offers an opportunity to leapfrog outdated technologies, while the rise of remote work could position Pakistan as a hub for freelance tech talent. At the same time, the country must navigate a multipolar world where China, the United States, and Gulf states vie for influence. Balancing these relationships—securing Chinese investment, maintaining Gulf remittances, and rebuilding trust with Western donors—will be a diplomatic tightrope.

A Call to Action

Pakistan’s economic revival is not a distant dream but a tangible possibility. The ingredients are there: a resilient populace, a strategic location, and untapped potential in multiple sectors. Yet, the window of opportunity is narrowing. Without decisive action, the country risks slipping deeper into debt and dependency, squandering the chance to harness its demographic dividend.
The stakes could not be higher. A thriving Pakistan would not only lift millions out of poverty but also stabilize a volatile region. It would signal to the world that even nations battered by history can rise again. For too long, Pakistan has been defined by its crises. Now is the time to redefine it by its comeback. The journey begins with a single, resolute step—one that its leaders, institutions, and citizens must take together.

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