Emboldened by a marked improvement in key economic indicators, apart from GDP growth, the country’s leadership now signals a shift from crisis management toward transformative growth.
Both Finance Minister Muhammad Aurangzeb and State Bank of Pakistan (SBP) Governor Jameel Ahmed have recently talked about the transformation of the Pakistani economy as their next goal. While macroeconomic indicators suggest tentative improvement, the real test lies in whether this rhetoric can translate into genuine, systemic reform.
One of the clearest signs of change is in Pakistan’s exchange rate regime. For decades, the policy pendulum swung between artificial overvaluation and abrupt depreciations — breeding uncertainty for businesses and draining foreign reserves. In contrast, SBP’s recent firm stance on a market-driven rupee marks a fundamental departure from the past.
The central bank’s reserves have also tripled over two years — from about $4.5 billion in June 2023 to $14.5bn as of July 7, 2025. Remittances have reached a record high of $38.3bn in FY25, up 26.6 per cent year on year. Merchandise exports also grew 4.7pc to $32.1bn — despite global headwinds, import restrictions, and high energy and financing costs.
Inflation, too, has been reined in more through demand contraction than anything else. The 4.5pc reading in FY25 — the lowest in nine years — signals more than just favourable base effects. A tight, coordinated monetary policy combined with fiscal restraint and notably subsidy cuts helped break entrenched inflationary expectations.
Despite recent improvements on the macro scale, true economic transformation requires confronting Pakistan’s long-standing structural bottlenecks
Fiscal discipline has also improved — though not without trade-offs. Pakistan’s combined federal and provincial fiscal deficit narrowed to 5.6pc of GDP in FY25, according to Fitch rating agency, down from 6.9pc a year earlier. But this came at a steep price: energy subsidies were slashed by Rs450bn, while development spending stagnated. More critically, debt servicing now consumes about half of overall federal revenues — and a staggering 75pc of the Federal Board of Revenue’s tax collections, projections for the new fiscal year reveal.
Financial inclusion is also accelerating. The number of active mobile money accounts has grown substantially, nearing the national target of 65 million set under the National Financial Inclusion Strategy. Women’s financial inclusion has improved dramatically — from 13m in 2018 to 31m by 2023 — raising women’s account ownership from 23pc to 47pc. This growth reflects a major shift in economic participation, supported by mobile wallets, branchless banking, and targeted policy reforms.
True economic transformation, however, requires confronting Pakistan’s long-standing structural bottlenecks. Take the energy sector: circular debt continues to accumulate at a rate of Rs50bn per month. State-owned enterprises — Pakistan International Airlines, Steel Mills, and the Independent power distributors — collectively bleed hundreds of billions of rupees annually. Judicial inefficiency remains a major obstacle to investment, with contract enforcement still taking 1,039 days, according to the World Bank’s 2024 report. These delays cost Pakistan 4pc of GDP annually. Investors demand contract enforcement, not ad hoc rulings.
Judicial inefficiency remains a major obstacle to investment, with contract enforcement still taking 1,039 days, according to the World Bank, costing Pakistan 4pc of GDP annually
The finance minister’s tax push won’t suffice unless elite capture is dismantled. Independent anti-graft courts with prosecutorial teeth are non-negotiable. Over $10bn is lost annually to corruption, according to Transparency International’s 2024 report. Policies made to benefit a few politically connected businesses also must discontinue.
Pakistan’s human capital crisis is equally alarming. Experts argue that Pakistan must allocate at least 4–5pc of GDP to education to lay the foundation of a true economic transformation. Rural poverty stands at 38pc and female labour force participation at just 22pc — both lagging regional peers. Digital identity systems and microloan schemes can help bridge these gaps — but only if provincial and local governments are empowered to act decisively.
From the civil service to state-owned enterprises, appointments remain politicised. The 18th Amendment’s promise of devolution remains unfulfilled. Local councils continue to cry out for both fiscal autonomy and regular elections.
The road ahead is not without peril. The dangers of rising debt loom large, with annual China-Pakistan Economic Corridor repayments of $3.5bn becoming due from 2026. Political risk is also elevated. The million-dollar question: can ongoing reforms survive electoral cycles and shifting coalitions? Climate vulnerability is another immediate threat, with adaptation funding still grossly insufficient.
The recently achieved economic stabilisation is only a beginning. Transformation demands moral courage, not just technical competence. It requires a break from the entrenched power asymmetries that have hollowed out the promise of both democracy and capitalism.
As inflation eases, so must inequality. As reserves grow, so must trust in institutions. The youth — 60pc of the population under 30 — are not waiting for another cycle of broken promises. They demand a new contract.
Published in Dawn, The Business and Finance Weekly, July 14th, 2025
