At a time when official statements are emphasising economic stabilisation and renewed confidence, a warning from the Pakistan Business Council (PBC) has exposed a widening gap between rhetoric and reality.
In a strongly worded letter to the prime minister, the country’s most representative industrial body has argued that under prevailing conditions, much of Pakistan’s industry is no longer commercially viable. This is not a political critique or a demand for special favours. It is a warning rooted in simple economics: when the cost of producing goods exceeds what markets are willing or able to pay, production inevitably declines.
The government’s narrative suggests that the worst is over. Inflation has eased from its peak, external accounts appear calmer, and policymakers regularly cite stabilisation as proof that difficult decisions are bearing fruit. Yet industry, which ultimately translates macroeconomic stability into jobs, exports and revenues, is telling a very different story. According to the PBC, energy prices, tax pressures and financing costs have combined to push production costs beyond sustainable levels, especially for large-scale, energy-intensive and export-oriented sectors.
This matters because industry is not an optional add-on to the economy. It is the backbone of employment creation, export earnings and fiscal capacity. When industrial margins are squeezed to the point where production becomes unviable, the consequences ripple outward. Factories cut shifts or shut down, workers lose jobs, tax receipts fall, and imports begin to replace domestic output. Over time, pressure re-emerges on the balance of payments, undoing the very stabilisation policymakers claim to have achieved.
The danger lies in misdiagnosing these outcomes as temporary stress rather than structural damage. Pakistan has experienced this cycle before: high costs suppress output, authorities manage the immediate fallout through controls or borrowing, and the economy settles into a lower-growth equilibrium. What the PBC is flagging is that this process is already underway again, particularly in manufacturing segments that depend on competitive energy pricing and predictable costs to survive in global markets.
What sharpens the concern is the credibility gap between official optimism and the government’s own data. Claims of improving investor sentiment sit uneasily alongside finance ministry figures showing a 26 percent decline in foreign direct investment during the first four months of the current fiscal year. Portfolio investors have withdrawn roughly $540 million, and overall foreign investment has reportedly fallen by more than 80 percent over the same period. These are not numbers produced by critics or opposition groups; they are official statistics. When public messaging clashes so starkly with state data, confidence erodes rather than improves.
Stock market performance is often cited as evidence that investors are buying into the recovery story. But this interpretation confuses financial market dynamics with industrial health. Equity markets respond to liquidity flows, expectations and short-term positioning. Factories respond to energy bills, borrowing costs and demand conditions. A rising index does not offset falling capacity utilisation, shrinking export orders or factory closures. Treating stock market gains as proof of broad-based recovery risks masking deeper weaknesses in the real economy.
At the core of the problem is Pakistan’s cost structure. Electricity and gas tariffs, burdened by surcharges, cross-subsidies and taxes, have risen well above regional averages. Financing costs remain prohibitively high compared to competing economies, reflecting both tight monetary conditions and structural weaknesses in credit markets. On top of this, compliance and regulatory burdens add time and cost without delivering commensurate gains in productivity or transparency. Policymakers are not unaware of these issues. Yet policy choices continue to prioritise short-term fiscal extraction over long-term competitiveness, particularly by using energy pricing as a revenue tool rather than treating energy as a critical production input.
This approach produces predictable results. Any immediate fiscal relief gained through higher tariffs or charges is offset by medium-term losses in output, exports and tax revenue. Once firms scale down, shut operations or shift production elsewhere, the damage is difficult to reverse. Skilled workers disperse, supply chains weaken, and market share is ceded to competitors operating in more stable and cost-efficient environments. Industrial decline, once entrenched, cannot be undone with slogans or temporary incentives.
The problem is compounded by weak consultation. The PBC has repeatedly pointed out that industry input is often sought after major decisions are taken, not before costs are imposed. Policies are then patched up through exemptions, concessions or ad hoc revisions, creating uncertainty rather than clarity. For investors, this is not flexibility; it is unpredictability. Capital responds poorly to environments where rules change midstream. It flows instead to jurisdictions where policies are stable and costs can be projected with confidence.
None of this requires radical experimentation or untested ideas. Successful industrial economies, including those competing directly with Pakistan, have demonstrated the same fundamentals time and again: affordable and reliable energy, predictable taxation, and financing structures aligned with production and export cycles. Pakistan has debated these principles for decades. What has been missing is consistent execution and sensible sequencing.
Taking the PBC’s warning seriously would require acknowledging that current pricing and policy structures are self-defeating. It would mean rationalising energy surcharges, protecting export- and employment-intensive sectors from punitive costs, and committing to transparent, time-bound roadmaps instead of improvised fixes. Above all, it would require recognising that stabilisation without a competitiveness strategy produces compliance without growth.
An economy cannot be balanced indefinitely by shrinking activity. Exceeding price elasticity to the point of market exclusion is not fiscal restraint; it is a process of industrial erosion. And if that attrition continues unchecked, it does not stop at factory gates. It eventually weakens the state itself, eroding the very foundations on which stability is supposed to rest.