It is no surprise that the authorities concerned try to give a positive spin to an otherwise negative economic outlook. The Finance Ministry has claimed that the national economy is performing well on the back of improved macroeconomic fundamentals and better fiscal management. But hard facts on the ground tell a different story.

The situation is best illustrated by declining foreign exchange reserves with the State Bank of Pakistan. By end-June, the SBP held only 9.1 billion dollars. This figure is 6.9 billion dollars less than the amount of rollovers extended by the three friendly countries, including China, Saudi Arabia and the UAE. This shows the precarious state of our foreign reserves. On the other hand, foreign investment declined from 1.58 billion dollars in July-May 2024 to 1.35 billion dollars in the corresponding period of 2024-25. Portfolio investment also turned negative -minus 559.5 million dollars in 2024 to minus 624.4 million dollars in 2025.

Similarly, the claim about containment of inflation is baffling because despite a dip in the inflation rate the poverty levels in the country rose to 44.2 percent as per the World Bank figures. The Pakistan Bureau of Statistics has shown a decline in the consumer price index for June as compared to May 2025 — 3.2 percent against 3.5 percent in May. But CPI takes into account the fluctuation in the price of imported items as well as those domestically produced. The actual weightage of fuels is lumped together with other utilities which results in lowering the inflation rate. For example, the weightage given to liquefied hydrocarbons, associated with crude oil and petroleum, had a low weightage of only 0.9994, while that ascribed to solid fuel, notably wood, charcoal, peat, dry dung, inexplicably was given a weightage four times higher at 4.4761 in calculation of CPI. According to experts, inflation is expected to rise in the current year due to various fiscal and administrative measures agreed with the IMG, including a raise in utility prices to meet the objective of full-cost recovery.

The claim about good fiscal management also does not stand scrutiny. There has been a massive rise in non-tax revenue from collections under petroleum levy, an indirect tax whose incidence is more on the poor than on the rich. Revenue from this source accounted for a 21 percent rise in the revised estimates of 2023-24 and in the current year’s budget the rise is projected at 26 percent more than last year – from 1161 billion rupees in the revised estimates of last year to 1468.39 billion rupees in 2025-26. This will put a heavy burden on the budget of the low-income group.

As far as external sector performance is concerned, there has been an impressive rise in remittances — from 27 billion dollars July-May 2023-24 to 34.89 billion dollars in 2024-25. But it is alleged by some economists that the State Bank of Pakistan purchased dollars in the open market and credited them under remittances. On the other hand, the unpaid dues of the Independent Power Producers established under the China Pakistan Economic Corridor amount to 1.72 billion dollars.

No doubt, exports have improved by 4 percent during July-May 2025 as compared to the same period the year before. But imports rose by 11.5 percent with the trade deficit rising to 24 billion dollars against 20 billion dollars in the previous year. Further, during July-April 2025 there was a negative 1.52 percent growth in large-scale manufacturing sector against positive 0.26 percent growth in the comparable period the year before.

Foreign investors are reluctant to come to Pakistan because all major credit rating agencies place Pakistan below investment grade and within the highly speculative indicative of material default risk with a limited margin of safety. One reason is the lack of structural reforms to put the economy on the right path. Tax reform measures are conspicuous by their absence and the reliance on indirect taxation continues unabated. Indirect tax constitutes 80 percent of the total budgeted tax revenue — 60 percent from identified indirect taxes and 75 to 80 percent of direct taxes to be collected from withholding taxes levied in the sales tax mode. Also, no policy measures have yet been taken to put the energy sector on an even keel. Despite continued pressure from the IMF, the privatisation process is yet to get under way.

The upshot is that the economy is in a state of stagnation with the general public suffering grievously under the twin burden of poverty and high unemployment. In this year’s budget while development expenditure has been reduced, non-productive administrative expenses have been raised. Nothing better illustrates the distorted priorities of the government. It is clear, until this damn-care approach is changed, there is little hope of any major economic turnaround in the foreseeable future.