There is a consensus of opinion among economists that Pakistan cannot tread the path of sustainable growth without structural reforms in fiscal, energy and other sectors. Among others, taxation reforms have been long overdue but no headway has been made in this direction. While the salaried class is heavily taxed, there is no effort to bring undertaxed segments into the net.
Similarly, inefficiencies in energy distribution companies result in higher tariffs. There is no plan on the anvil to accelerate industrial growth. There is much talk about stability, but without reforms, we cannot go up the growth ladder and expand employment opportunities.
It is time the government launched the urgently needed structural reforms to set the economy on a sustainable growth path. In this connection, it is relevant to refer to a recent report jointly released by the Association of Chartered Certified Accountants and the Pakistan Business Council, emphasising the need for reforms in sustainable finance, corporate governance and policy frameworks to tackle current challenges and secure Pakistan’s long-term economic future. Titled “Building a Case for Green Business in Pakistan”, the report says that adoption of sustainable business practices has become essential for fostering competitiveness in global markets. By directing capital into projects that are environmentally responsible, socially inclusive and economically viable, sustainable finance can help Pakistan overcome some of its most pressing problems, including the climate crisis, food and water security, and attracting much-needed foreign investment. Such a course of action will go a long way to reduce poverty and promote equitable growth.
To this end, we need to speed up the pace of industrialisation and implement business practices that encourage foreign direct investment (FDI). We must remember that investor confidence is shaped not only by financial risk assessments but also by perceptions of the country’s stability, and policy direction and consistency. This aspect calls for special attention from government leaders because the current security situation leaves much to be desired. To quote the report, “it is investors who decide which ideas to promote by voting with their capital”. Investors look beyond immediate profits and consider the broader, long-term gains of supporting environmentally and socially responsible growth.
It is for the government and regulatory authorities to create a conducive policy environment characterised by consistency and continuity. In our case, rules and regulations are changed frequently which erodes confidence, and as such investors find it difficult to commit resources to long-term projects. Arbitrary tax rules, frequent policy reversals, weak contract enforcement and the absence of clear policy frameworks discourage new investment. Uncertainty about the direction of policy has a negative impact on the inflow of sustainable finance which requires stable conditions to thrive.
It is a general complaint from business circles that they are forced to divert time and resources towards tackling new rules and procedures instead of working for business growth. Corruption is another serious hurdle in the way of business growth. This saps investor confidence, discourages long-term planning and damages the growth of the economy as a whole. A stable regulatory framework is essential to attract foreign capital and enable domestic enterprises to plan for the future.
The international market has become increasingly competitive and to survive Pakistan must continue to innovate and keep pace with the changing times. We know how our peers like Bangladesh, India, Thailand and Vietnam have succeeded in attracting huge foreign investment by offering reliable industrial ecosystems, stable policies and an easy business environment. Like its peers, Pakistan should also prioritise policy consistency, a fair, open and just dispute resolution mechanism and a guaranteed system of investor safeguards. Without these foundations, efforts at arousing investor confidence may not attract the kind of long-term capital the country needs.
The SBP Governor recently said that the economy is now on a stable footing, citing the rise in SBP’s foreign exchange reserves from USD 2.8 billion to USD 14.3 billion in a little over two years. In another statement, the Deputy Governor told the Senate Standing Committee recently that had the SBP not purchased dollars from the interbank market the PKR would have appreciated against the USD. This is in accordance with the media reports that said that SBP bought 8.2 billion dollars from the market between June 2024 and May 2025. Estimates suggest total purchases of USD 12-14 billion during 2024 and 2025 so far. In other words, PKR stability is tied to SBP’s active dollar purchases.
However, there is a catch here. As for the current reserve of USD 14.3 billion, if USD 2.4 billion in forward liabilities and USD 12 billion in short-term rollovers are accounted for, usable reserves become nil. Another issue is PKR’s appreciation at a time when interest rates have been cut by half. This undermines the long-term prospects of export growth. Major textile exporters cannot expand capacity for new orders because of currency fluctuations, besides high cost of doing business. The upshot is that without further delay the government should offer a new package of incentives to encourage local investors and attract foreign investment.