The latest Gallup survey indicating a rise in business confidence is a welcome development for Pakistan’s economy. According to the survey, businesses seem to be regaining some hope in the economic outlook, which, if sustained, could translate into higher investment and job creation in the future.

However, it will be simplistic to conclude that the economy has turned the corner because the issues relating to policy direction, taxation, and governance remain unresolved. There are also concerns over inflation, inconsistent regulations, and unpredictable policy making. If business confidence is on the rise, it must be bolstered by the government by providing clear roadmaps on taxation, industrial policy,and much needed economic reforms. The governance issues, including bureaucratic inefficiencies, corruption and weak institutional decision-making are big hurdles to economic stability and growth. In this context, the government needs to commit to policy consistency, maintain fiscal discipline, and engage in meaningful dialogue with the business community.

The point is that the economy is looking up but there are still many challenges to overcome. Government debt is rising, while the rupee is losing value. There is also a shortage of foreign exchange reserves. Various government functionaries, including  Finance Minister Muhammad Aurangzeb, have claimed that economic stability has been achieved. But this claim is based on a current account surplus and a major decline in inflation, not on any major recovery trajectory. According to experts, the current account has shown a surplus mainly because there was a rise in exports on the back of banning Indian rice exports and the political unrest in Bangladesh. The rise in exports has also much to do with the grant to the private sector of fiscal and monetary incentives that have now been withdrawn as per the agreement with the ongoing International Monetary Fund (IMF) programme.

The reduction in the discount rate from 22 percent in April last year to 12 percent recently has reduced the cost of capital but it is still higher than the regional average, so this does not provide a competitive edge to exporters. On the other hand, the industrial sector continues to languish as evidenced by the statistics released by the Pakistan Bureau of Statistics whereby LSM registered negative 3.81 percent in November 2024 year on year and negative 1.19 percent month on month. Imports are being curtailed through administrative measures to reduce the pressure on the current account which, in turn, reduce productivity of those sectors that are reliant on raw material imports for their output.

Inflation has come down from 28.73 percent July-January 2023-24 to 6.50 percent in July-January 2024-25. But this figure is based on the subsidised electricity rates for the poor and vulnerable rather than the average power rate and subsidies on specific essential items sold in Utility Stores. Independent economists argue that the actual rate is in double digits. At the same time there has been a 20 to 25 percent erosion in the incomes of the bulk of the country’s workforce operating in the private sector which perhaps accounts for the rise in poverty levels to 44 percent.

Foreign direct investment has risen from 976 million dollars in July-January 2023-24 to 1.525 billion dollars in the comparable period of this year but this is peanuts as compared to FDI inflows into China of 747 billion dollars in January-November 2024 and India’s 29.7 billion dollars in six months last year.

For long-term economic stability, Pakistan needs to break free from the endless cycles of external assistance and loans. To this end, Pakistan must address structural inefficiencies in revenue collection, revamp the energy sector and privatize state-owned enterprises. Rightsizing the federal government, reforming SOEs, and fostering export-led growth will strengthen internal revenue sources and reduce reliance on international funding agencies

The government also needs to put more focus on priority sectors such as agriculture, IT, renewable energy, mining and minerals, textiles and apparels and pharmaceuticals. Pakistan’s economic transformation calls for a strong political will and visionary leadership. Overcoming challenges in the economic field requires firm determination and collective effort. We have an experienced workforce, abundant natural resources, and immense production potential. To translate these assets into concrete economic results, long-term, innovative planning is needed. According to a recent research study, with sustained economic recovery, poverty levels could decline substantially in a year’s time. However, achieving this target requires comprehensive reforms in education, healthcare, and employment generation. Needless to say, self-reliance holds the key to Pakistan’s future progress.