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Last year, he has seen a significant change in the renovation of Pakistan’s economic land. The fiscal deficit has been reduced, which has a historic additional amount of 3.0 % of GDP for July March, the first financial surplus in 24 years, and inflation is less than 17.3 % a year ago. Foreign exchange reserves have increased by $ 16.64 billion and the Pakistan Stock Exchange index increased by 50 % in FY 2025, reflecting investors’ confidence.
These achievements have acknowledged globally and because of this, Pakistan’s sovereign credit rating has been upgraded by Fitch in CC+ B-(Stable Outlook). The Current Account has posted an unexpected surplus and has affected the historical heights of remittances-March 2025 received 1 4.1 billion and 31 % more remittances year year.
This is probably a sign of a comfortable observer, which is probably a sign that Pakistan’s economic ship is eventually on the right path. However, macro stability, while critical, have no cure for deep seated obstacles that are preventing investment and industrial development. If anything, the latest data indicate the extent to which these obstacles are permanent and dangerous.
FDI and the formation of capital
Let’s start with foreign direct investment (FDI). Despite the macro’s background, Net FDI was worth $ 1.785 billion during July -April, which has declined 2.8 % year -on -year. Most arrivals were focused on low -spleover’s ability, such as power and services, and began with a narrow band from countries, including China. There is little indication of Green Field investment in manufacturing, high -tech or export -based industries, even by investing GDP ratio has increased to 13.8 %, which reflects permanent low performance than regional colleagues.
Why does it matter? Because the FDI can only run development and productivity when it creates new technology, management information and links to the domestic economy. Pakistan’s FDI profile offers some such spiral. Instead, it relies on a handful of external partners and exposes the economy with geographical political and sectarian shock.
Domestic investment situation is hardly good. The formation of the overall fixed capital is slow. In May 2025, the policy rate was helped to reduce the rate by 11 %, lower than the top of 22 %, the private sector’s credit has increased but the financial batch is still low. Most SMEs and tech businessmen face limited access to high suicide attack needs and risk capital, even as the number of active microfinance lenders has increased to 12.3 million.
Structural rigidity
The situation in large -scale manufacturing (LSM) is even more serious. Despite the policy efforts and recovery in some sub -sectors, LSM production contracts 1.5 % during July March, which has permanent structural barriers in key sectors, high input costs and contraction (food, chemicals, iron and steel, power equipment). Although the automobile sector has increased by 40 % and the textile sector has increased 2.2 %, these are exceptions rather than rule. The financial and mining sector also continued to contract, which decreased 3.4 % in fiscal year 2025.
As long as the policy makers use the window to make structural reforms that solve the main causes of industrial stagnation, the current benefits will prove the ship faster. The choice is tough: maintain the usual business or seize the moment.
Many IT sectors increased export receipts (8 2.8 billion) by 23.7 % and received a trade surplus of $ 2.43 billion. However, it is a part of what it needs to change the economy. The lack of modern manufacturing, poor R&D and weak links between academia and the industry has further strengthened this problem.
The practical understanding of these trends shows a structural net: Pakistan’s industrial sector is caught in low cost, low production activities, which fails to break high -cost manufacturing or to exploit regional supply chain shifts. Unlike Vietnam or Bangladesh, which has used FDI and industrial policy to transmit high value, Pakistan depends on basic exports and remittances.
Obstacles to entry and growth
The business environment is maintaining investors and businessmen. Regulatory unexpected capacity, burdensome tax procedures and slow dealing prevent both domestic and foreign investors. Despite the recent reforms, Pakistan stands behind in practically every indicator of the ease of doing business with regional rivals, from starting a business to resolving insurance. 26,104 new companies (July 2025 of July 2025) and microfinance are positive indicators, yet the capital market volatility is clear. It can be promoted by political and geographical political uncertainty. The benefits of the stock exchange in 2025 are impressive but are relieved in confidence, as the institutional depth is still lacking.
For SMEs, access to formal credit and risk capital has become a major obstacle. Despite the financial inclusion and some progress in the company’s formation, informal is about to promote innovation and productivity.
Correction, the way forward
What is the way forward? Not more than that. Pakistan cannot trust the episodes of macro -stabilization from time to time to advance real, permanent development. Instead, bold structural reforms are needed.
They should deepen financial markets and improve access to SMEs to credit, as well as rational and digitalizing the tax and regulatory system, especially since the tax base is narrow and relies heavily on indirect taxes. In addition, it is important to invest in the development of human capital and expertise. This year, 56,000 people trained under the Prime Minister’s Youth Skills Development Program. There is more to be done.
The adoption of modern industrial policy focuses on technology, diversity in exports, and integration in global value chains. Not only capital, but also to attract access to knowledge and market, the FDI policy should be re -formed.
In his budget speech, the Finance Minister called for reforms in the energy sector (IPP renewal, NTDC reforms), tariff rationalism under the National Tariff Policy 2025-30, ongoing SOE’s reorganization and privatization (PIA, Disco, Jenkos), social protection and climate. These are important steps whose success will depend on complete implementation and integration in the integrated strategy for industrial renewal.
Climate financing and digital change are promising (such as, Pakistan’s first carbon market policy was launched in 2024, climate budget tagging, and IT and ITES trade surplus), but it needs to be made in a wider economy, it has not been left out as a measure of measures. Above all, policy stability, institutional strength and political consensus are needed to make a reliable, long -term vision for the future of Pakistan’s industrial and investment.
Pakistan has achieved impressive stability. Official data highlights both the extent of progress and the perseverance of the basic obstacles. As long as the policy makers use the window to bring structural reforms that solve the main reasons for industrial stagnation and weak investment, the current benefits will prove to be visible. The choice is tough: maintain the usual business or seize the moment of change. For Pakistan’s economy and its people, there is only one real way.
The author is the Research Associate at the Sustainable Development Policy Institute.
