The slow road to recovery
Pakistan’s economy is showing signs of improvement. The inflation rate has come down to a six-year low, and the stock market has exceeded all records. These are indicators of progress as the Asian Development Bank (ADB) has also revised its economic growth forecast for Pakistan in the fiscal year 2025 to three per cent.
While this marks an upward revision, the figure evokes mixed reactions. It reflects growing international confidence in Pakistan’s economic stability and recognises the government’s efforts to halt a perilous economic freefall. However, a 3pc growth rate, while an improvement, is far from sufficient for a country facing daunting challenges. It underscores the need for a robust, comprehensive strategy to unlock sustainable growth.
In its November 2024 issue, “Economic Monthly Update & Outlook,” Pakistan’s Ministry of Finance struck a cautiously optimistic tone, highlighting sustained recovery across sectors. According to the report, the current account surplus of $218 million in the first four months of FY25 — a remarkable turnaround from the $1.5 billion deficit during the same period last year — reflects improved economic management.
Additionally, the 200bps (2pc) reduction in the policy rate announced by the State Bank of Pakistan, bringing it to 13pc, will further ease inflationary pressures and give impetus to the much-needed industrial growth.
A 3pc growth rate reflects resilience in challenging circumstances but falls short of the momentum needed for meaningful progress
These indicators are encouraging, signalling that Pakistan’s economy has begun to stabilise. Yet, the question remains: Can this fragile recovery translate into sustainable, inclusive growth?
The modest forecast of 3pc growth exposes Pakistan’s chronic economic vulnerabilities. Neighbouring countries like India and Vietnam are racing ahead with growth rates that consistently outpace Pakistan. India, for example, is projected to grow at 6.3pc in 2025, while Vietnam continues to expand at an impressive rate of 6.5pc, leveraging its export-driven economy and integration into global supply chains.
While international endorsements — such as the ADB’s upward revision — may provide a morale boost, Pakistan cannot rely solely on fiscal consolidation and international loans to drive long-term prosperity. Structural issues such as low agricultural productivity, underdeveloped industrial capacity, and an inadequate digital economy continue to weigh heavily on the country’s growth potential.
The agricultural sector faces vulnerabilities due to climate shocks, with last year’s floods impacting cotton yields, underscoring the need for climate-resilient policies and sustainable practices. Similarly, the industrial sector’s uneven recovery, marked by negative year-on-year growth in large-scale manufacturing, highlights the need for targeted interventions like energy subsidies and value-added manufacturing incentives.
One glaring gap in Pakistan’s economic revival strategy is the digital economy. In October and November 2024, Pakistan cracked down on several apps and platforms while slower internet speeds were widely reported.
The Ministry of Finance’s report highlights an 8.7pc increase in goods exports during July-October FY25, reaching $10.5bn. While this is a positive development, it pales in comparison to the performance of regional competitors. Vietnam’s export-oriented economy continues to thrive due to its strategic focus on high-value goods and integration into global supply chains. India, too, has diversified its export portfolio, capitalising on sectors like technology, pharmaceuticals, and services.
Public-private partnerships could play a pivotal role in driving infrastructure development, streamlining regulatory frameworks to attract foreign direct investment, and encouraging small and medium-sized enterprises to help create jobs and drive innovation at the grassroots level.
The government’s achievement in stabilising the economy deserves recognition, but stability should not be equated with prosperity. A 3pc growth rate reflects resilience in challenging circumstances but falls short of the momentum needed for meaningful progress.
Key priorities moving forward include enhancing climate resilience in agriculture to safeguard food security and export earnings, reviving the digital economy by addressing internet access barriers and creating a startup-friendly ecosystem, and diversifying exports through targeted support for high-value sectors like mobile phones, electronics, and pharmaceuticals.
The time has come for Pakistan to rise above short-term fixes and embrace a bold, transformative economic vision. As we step into FY25, let us unite to craft a future that embodies fiscal discipline while igniting growth and opportunity for every citizen. This is a call to action for all Pakistanis — policymakers, entrepreneurs, and citizens alike — to bring creativity, foresight, and unshakable resolve to drive the reforms that will shape a prosperous tomorrow.
The writer is a freelance journalist based in Islamabad, specialising in reporting on the economy, energy, and climate issues.
Email: fparacha@gmail.com, X:@fezi22
Published in Dawn, The Business and Finance Weekly, January 13th, 2025