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Akistan’s economy is showing signs of cautious recovery after years of instability, in which many important indicators show gradually improvement. The GDP growth rate for the financial year 2025 was 2.68 %, which has begun to return to the minor but significant health with the previous predictions. Inflation, which has reached an unbearable level for most citizens, has dropped to 4.5 %, which provides the most essential assistance to households and businesses across the country.
Positive developments have created a combination of financial hardship, financial discipline and relatively exchange rate stability, which the government has worked hard to maintain. In addition to these improvements, Pakistan’s foreign policy has become more vibrant and important. The country has successfully engaged several global powers without relying on a single ally.
The strategic partnership with China is strong, especially through China -Pakistan economic transit, which is the basis for infrastructure development. At the same time, relations with the United States have become stable after periods of stress. Relations with Russia have deepened through energy cooperation agreements.
Pakistan has maintained its traditional alliance with Saudi Arabia, taking carefully to handle its relations with Iran. This balanced, multilateral approach has allowed Pakistan to secure economic privileges, attract investment and seek diplomatic support from various power centers. The ability to take advantage of these relations will be important to Pakistan’s economic future.
An important test of Pakistan’s economic management is in the ability to maintain the confidence of foreign investors, especially for large -scale infrastructure projects. The recent dispute between the power division of more than Rs 431 billion and the State Bank of Pakistan in the unpaid liabilities to Chinese power companies highlights the challenges in this regard. SBP says only 26.5 million are outstanding. However, the power division insists that “billions” have been trapped in commercial banks due to delays in the procedure. Such contradictions in ideas indicate maximum transparency and immediate need for performance to maintain reputation as an investment destination.
The Board of Investment has identified six special economic zones as priority locations for Chinese investment. Land allocation and infrastructure development is already ongoing on some sites, including Rashkai and Dhubi. To ensure timely implementation of the projects, the government has proposed to enforce the service level contracts (SLA), which is obliged to clear the authorities related to investors in unanimous timeframes. These measures represent positive measures, but their effectiveness will depend on permanent implementation and follow. The international business community will closely look at Pakistan’s ability to respect its promises to foreign investors and can determine the flow of future investment in the country.
Bureaucratic red tape has long been a major obstacle to both foreign and domestic investors. Recognizing this permanent problem, the government has launched a launch to eliminate unnecessary business barriers, called the “Regulatory Galloten”. The purpose of the business facility centers is to connect the federal and provincial departments under a single window system, which can potentially reduce approval times for permits and licenses. Initial estimates suggest that these reforms could reduce the cost of annual business to Rs 250 billion and promote economic activity.
Tax reforms have become the center of the government’s economic agenda. Prime Minister Shahbaz Sharif is personally emphasizing more documents and digitalization at the Federal Board of Revenue. The introduction of a simple Urdu language tax return form represents a practical step toward expanding the tax net, making it easier for small businesses and individual taxpayers. Digital Enforcement Unit and Customs reviews are being prepared to reduce corruption opportunities and increase transparency in the recovery of taxes. If this technical improvement is properly implemented and maintained, Pakistan’s tax administration can significantly strengthen.
Export growth should be encouraged by target privileges and value -added industries. Direct foreign investment should be encouraged through permanent policies and a reliable resolution of the conflict.
Despite these positive measures, Pakistan’s tax system relies heavily on indirect taxes that improperly put burden on low -income citizens. Tight tax base limits revenue production as major sectors like real estate and wholesale trade remain out of a large -scale tax net. In order to increase the increase in sustainable income, difficult political decisions will be needed to bring these non -huts or tax sectors into the system.
Pakistan’s financial status has shown some improvement, with the deficit decreasing by 5.4 percent of GDP in FY 2025 to decrease by 6.8 percent last year. The basic surplus has increased significantly, which has reached Rs 2.7 trillion and provides the government with some financial breathing room. Provincial governments have participated in this improvement by posting an additional amount of Rs 921 billion, which has shown better financial management at the sub -national level. These developments suggest that the results of financial stability have begun to produce results, though there is a lot of work to achieve long -term stability.
The debt situation remains an important challenge. The loan service is eating a large share of the government’s income. This huge debt burden leaves limited financial space for infrastructure, education and health care costs. This investment that is essential for long -term growth is essential. The government should carefully balance the necessary simplicity measures with strategic investment that can mobilize economic activity and generate future income. Finding this balance will require implementation of difficult choices and financial policies during an extension period.
One of the most encouraging economic progress is Pakistan’s current account 1 2.1 billion, the first in 14 years. The change has been driven by a 26 % increase in remittances, which has reached $ 38.3 billion in fiscal year 2025. However, a permanent trade deficit in goods and services is a threat that can damage the stability of the external sector. To reduce this deficit, these policies will require concrete efforts to increase exports that encourage the increase in key sectors like textile, IT and agriculture.
The rapid decline in inflation represents a major success, providing the same relief to consumers and businesses. In order to maintain the stability of this price, a sensible monetary policy management will require constant vigilance from SBP. In order to increase business and investment support, the interest rates will be cautiously necessary to prevent the availability of Loadit debts from regenerating inflation. Exchange rate stability will also play an important role in maintaining imported inflation, which depends on Pakistan’s imported energy and other essential items.
Looking forward, Pakistan faces many critical challenges that can affect its economic achievements. Political instability has become a permanent threat that can lead to a difference of policy overthrow or implementation. External shocks such as rising oil prices or climate disasters can remove economic growth. While focusing on long -term structural reforms, the government will have to prepare strong emergency projects to reduce these risks.
Pakistan will have to give priority to some important areas. Strengthening the institutions should be at the top of the agenda, ensuring the continuity of the policy and reducing political interference in economic decision -making. The tax base of financial stability must be expanded, which requires the government to bring unorganized sectors to a formal economy, while making the system more equal.
Export growth should be encouraged by target privileges and value -added industries. Direct foreign investment should be encouraged through permanent policies and a reliable resolution of the conflict. Human capital investment through education and vocational training will increase productivity and competitiveness. Finally, social protection programs should be strengthened to protect the weaker population from economic shock.
The current economic stability provides the basis for comprehensive and equal growth. By maintaining financial discipline, deepening beneficial foreign partnerships and achieving comprehensive economic policies, Pakistan can transfer to sustainable development through the management of the crisis. Challenges are important, but with the implementation of sensible governance and permanent policy, the country can secure a more stable and prosperous future for its citizens. The coming years will be very important to determine whether Pakistan can be free from its economic cycles and achieve lasting progress.
Dr. Ikramol Haq, the author and the Supreme Court’s lawyer, is an affiliated teacher in the Lahore University of Management Sciences.
Abdul Rauf Shakuri is a corporate lawyer based in the United States.
