The Pakistani economy finds itself in a precarious state, burdened by spiraling debt and a dismal export performance. While regional peers have surged ahead with technology-driven exports, domestic innovation, and prudent macroeconomic management, Pakistan remains trapped in a cycle of borrowing and underperformance. The persistence of these structural weaknesses reflects not merely poor policy choices, but a deeper malaise—one where political instability, bureaucratic inertia, and fiscal mismanagement have repeatedly prevented the country from breaking free of its economic rut. Nonetheless, there remains hope. If approached with sincerity and backed by unwavering political will, Pakistan can undertake a multi-pronged strategy that simultaneously reduces its debt burden and repositions it as an export-competitive economy.
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To appreciate the magnitude of the challenge, one must first examine the current macroeconomic snapshot. Pakistan’s gross public debt surpassed PKR 71 trillion by June 2024, while the total external debt and liabilities stood at over USD 130 billion. Inflation continues to erode purchasing power, unemployment remains high, and the tax-to-GDP ratio hovers around a disappointing 9 percent. The Pakistani rupee, though stabilized temporarily through IMF-backed programs, continues to face pressure due to chronic trade imbalances. Moreover, international investor confidence remains shaky, with most foreign direct investment trickling in only under extraordinary facilitation mechanisms such as the Special Investment Facilitation Council. What becomes evident from this tableau is not just the urgency of reform, but the interconnectedness of debt reduction and export enhancement.
The first step toward addressing the debt crisis must begin with a serious effort to broaden the tax base. The country's narrow tax net and regressive tax policies have left the state over-reliant on borrowing to fund even basic governance. Equally troubling is the institutionalized tax evasion practiced with impunity by powerful lobbies and affluent segments of society. While salaried individuals and indirect taxation contribute disproportionately to national revenues, vast swathes of agricultural income, retail businesses, and real estate profits continue to operate in the shadows. Therefore, enhancing documentation, deploying technology, and ensuring enforcement across all sectors of the economy is vital. Furthermore, reforms in the Federal Board of Revenue must be depoliticized and insulated from lobbying pressures if the country wishes to unlock fair and sustainable revenue growth.
Alongside revenue enhancement, expenditure rationalization must form the other leg of fiscal prudence. For decades, Pakistani governments have indulged in wasteful, populist spending while slashing development budgets and failing to reform bloated bureaucracies. The result has been a consistent budget deficit and growing domestic debt. Curtailing non-essential expenditures, especially those related to perks and privileges of state functionaries, would not only save resources but send a powerful signal of seriousness. Similarly, redirecting funds from loss-making state-owned enterprises to more productive areas such as health, education, and infrastructure would result in long-term savings and improved service delivery. In this regard, the privatization of chronically loss-incurring institutions like PIA, Pakistan Steel Mills, and WAPDA should not be postponed further under political pretexts.
It is worth noting that privatization, if conducted transparently and strategically, can do more than just reduce debt. It can also invigorate efficiency, attract foreign investment, and release the government from the financial drain of propping up entities that no longer serve a public purpose. However, for privatization to succeed, public skepticism must be addressed through accountability, competitive bidding, and safeguarding of employee rights. Pakistan’s history of privatization is riddled with scandals and reversals, but a new framework grounded in transparency and fairness can rebuild trust.
Moreover, if the country is still unable to service its domestic debt load effectively, early and proactive debt restructuring may be an option worth exploring. While often considered a measure of last resort, restructuring can create fiscal breathing room and smoothen payment obligations. The case of Sri Lanka offers instructive lessons. Following default in 2022, it undertook tough structural reforms and engaged with both bilateral and multilateral creditors for re-profiling its obligations. Pakistan, though not yet in formal default, experienced several moments in 2023 when its reserves dropped to alarmingly low levels. Thus, it must not wait for the inevitable, but instead engage with creditors in a preemptive and negotiated restructuring process that aligns debt servicing with fiscal realities.
Debt reduction alone, however, cannot fix the economy. It must be matched with a robust strategy to increase exports—both in volume and in value. Presently, Pakistan’s export basket remains narrow, heavily reliant on low-value-added textiles and a handful of agricultural commodities. This leaves the country vulnerable to global price fluctuations, trade disruptions, and limited market penetration. To break this ceiling, Pakistan must move up the value chain. For instance, instead of exporting raw cotton or yarn, the country must invest in producing high-end garments that fetch better prices in international markets. Similarly, the IT and services sector, which recorded over USD 3.2 billion in exports recently, has significant untapped potential. With minimal infrastructure and the right talent pool, it offers a viable pathway to foreign exchange generation, provided the government supports training, infrastructure, and streamlined regulation.
Pakistan must also embrace global standards and certifications if it wishes to penetrate lucrative markets in Europe, North America, and East Asia. Compliance with sanitary and phytosanitary standards, environmental benchmarks, and labor protections are no longer optional but mandatory for export growth. The experience of Bangladesh is instructive here. Through structural reforms, investment in worker training, and compliance enforcement, it transformed into a global powerhouse for ready-made garments, despite similar starting conditions. Pakistan, too, has the capacity to compete—what it needs is the resolve and the roadmap.
Another critical pillar for export growth lies in the empowerment of small and medium enterprises. Often overlooked in policy discourse, SMEs constitute nearly 40 percent of Pakistan’s GDP and contribute to 25 percent of exports. These enterprises, however, face myriad challenges ranging from credit access and regulatory bottlenecks to absence of global linkages. The Small and Medium Enterprise Development Authority (SMEDA) must play a more proactive role in policy formulation, skill development, and market facilitation. If given the right ecosystem, SMEs can serve as the backbone of a more diversified and resilient export base.
Workforce development must accompany export diversification. Pakistan’s young and growing population presents both a challenge and an opportunity. The UNDP's low ranking of Pakistan on the Human Development Index reflects inadequate investment in education, health, and skills. A paradigm shift is needed—one that views the youth not as a demographic burden but as a productive asset. Encouraging entrepreneurship, especially among women and the underprivileged, can stimulate innovation and widen economic participation. Existing organizations such as OPEN and TIE offer platforms that can be scaled up through public-private partnerships. Moreover, greater labor force participation, especially in underdeveloped regions, can enhance domestic production while aligning with the broader objective of inclusive growth.
Naturally, none of these measures exist in a vacuum. They require a stable political environment, long-term vision, and institutional continuity. Unfortunately, the Pakistani political landscape remains deeply polarized, with economic policy often held hostage to partisan interests. The frequent changes in leadership, ad hoc policy reversals, and administrative reshuffling undermine investor confidence and derail reform momentum. Therefore, one of the most vital economic reforms is political maturity—where governments of all stripes agree on core economic principles and provide continuity in execution.
Furthermore, the government must recognize that economic sovereignty is not merely about minimizing external debt but about ensuring domestic productivity and self-reliance. An economy that borrows for consumption or budget support, rather than for investment or development, invariably ends up with higher repayment burdens and reduced flexibility. Pakistan’s long history of program-based aid must now give way to performance-based investment, both from within and from abroad.
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Moreover, regional integration offers another avenue for enhancing trade. Pakistan’s geographic location, adjacent to Central Asia, China, and the Gulf, provides strategic access to multiple markets. However, the absence of regional trade agreements, poor connectivity, and geopolitical tensions have impeded this advantage. Projects like the China-Pakistan Economic Corridor, if operationalized inclusively and transparently, could serve as conduits for export-led growth. Similarly, reopening of trade with neighboring countries, based on reciprocity and mutual benefit, must not be treated as a political taboo.
In conclusion, Pakistan stands at a crossroads. It can either continue to muddle through short-term bailouts and ad hoc measures, or it can embrace a strategic transformation rooted in fiscal discipline, export enhancement, and institutional reform. The former guarantees continued economic erosion, while the latter demands sacrifice but promises sustainability. To chart this new path, Pakistan must shed the crutches of dependency, reignite its productive potential, and trust in the capabilities of its people. In doing so, it may finally begin to shift from economic stagnation to resilience, from despair to development.
