According to the latest figures, private investment in manufacturing has fallen to its lowest level in over a decade — from Rs706 billion in FY19 to Rs377 billion in FY25. Another figure that should attract our attention is that large-scale manufacturing contracted 1.5 percent in FY25. The combined share of manufacturing and mining in GDP is a paltry 13.2 percent. The result is a rise in unemployment and fewer goods available for exports.

There are clear signs that the economy is stagnating, with the industrial base shrinking from year to year. Fresh investment is not coming to replace worn-out machinery in industry. This has led to a fall in production and loss of the growth momentum. The Lahore Chamber of Commerce and Industry recently said that investment is now below replacement level which means that the capital stock is aging fast adversely affecting the quality and cost of production. In this context, it may be added here that the major exporters of this country — textiles, surgical/sports goods, carpets, leather — have time and again lamented the rise in their input costs (including high utility charges and a discount rate double that of our regional competitors) with shutdown of local units as well as the exit of many international companies in recent months.

Due to high interest rates, borrowing costs have been high, while import restrictions have resulted in a shortage of essential inputs. A volatile currency makes matters worse. It is relevant to point out here that on the economic front our neighbouring countries are doing much better. India reported industrial growth of 4 percent in FY25., while Bangladesh recorded 3.98 percent. They achieved this feat through export diversification and keeping the cost of production low.

In recent years, the government has been mainly concerned with monetary stabilisation and paid little attention to developing an industrial strategy that reduces the cost of producing and exporting goods. Import restrictions force the  factories to work below capacity and produce less. Due to this policy little is left for export after domestic consumption. In the latest Human Development Index (HDI) released sometime back, Pakistan registered a score of 0.544, placing it 168th out of 193 countries in the ‘low’ human development category, marking a deterioration from the previous year’s position of 164. Pakistan’s HDI fell even further by 33.1 percent to 0.364, showing that economic gains mean little when they fail to uplift living standards of the people. Pakistan’s failure in the health and education sectors exposes the government’s claim of having achieved economic stability. There is a 40 percent stunting rate among children under five. 25 million children are out of school. The situation regarding sanitation, clean water, housing and food security leaves much to be desired. Pakistan is in the grip of a lethal mix of environmental and socio-economic pressures resulting from insufficient resources and lack of long-term planning.

There is no way out of the logjam without drastic reforms in all sectors. The first step in this direction is policy consistency and coherent long-term planning to attract and increase investment in industry and agriculture. A credible path back to expansion needs transparency on input availability, firm timelines for tariff rationalisation in energy, and assurances of policy continuity. The most urgent need of the hour is a generous package of incentives both for industrialists and exporters so that the country can earn more foreign exchange. To pay back its foreign debt.  Singapore, a small city state, boasts exports of about 250 billion dollars annually. The same is the case with Vietnam which has risen from the ashes of a prolonged war to become a high export income country. But our exports are a measly 30 billion dollars a year. Even Bangladesh with a limited resource base earns more from exports as compared to Pakistan.

The fact that in the Ease of Doing Business Index Pakistan is ranked in the lowest category speaks volumes about the kind of business environment prevailing in the country. Exorbitant cost of energy is one of the biggest hurdles to industrial growth. Another roadblock is the complex web of rules, regulations, taxes and levies which make the smooth running of industry a difficult task. Corruption is the last straw on the camel’s back.

A well-considered economic revival plan is needed to address such issues as reliability of energy costs and supply, timely access to inputs, and a simple and lean tax administration which is friendly to the business class, not hostile. The proposed revival plan must also include incentives to encourage foreign direct investment which is at a very low level at present. Needless to emphasise, without restoring the economy to full health, we cannot meet the challenge of mass unemployment and rising poverty staring us in the face.