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Why Pakistan’s Survival Depends on Urgent Economic Reforms?

Sir Ammar Hashmi

Sir Ammar Hashmi, a CSS qualifier, coaches General Ability & Current Affairs.

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1 July 2025

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Pakistan’s economy is in deep turmoil, burdened by rising debt, inflation, and failing economic policies. Mismanagement of state-owned enterprises, a weak tax system, and inefficiencies in the energy sector continue to drain national resources, while external financial aid offers only temporary relief. Without urgent reforms in privatization, taxation, debt management, and industrial growth, the country risks prolonged financial instability and economic decline.

Why Pakistan’s Survival Depends on Urgent Economic Reforms?

Pakistan’s economy remains trapped in a cycle of instability, struggling under the weight of persistent financial crises. The nation has repeatedly failed to establish sustainable policies, leading to mounting debt, a weakening currency, and inflation that erodes purchasing power. While international interventions offer short-term relief, long-term stability remains elusive. The urgency for decisive action has never been greater.

The country’s economic indicators reflect a grim reality. Over the past two years, inflation has surged, with essential commodities becoming increasingly unaffordable for the average citizen. Meanwhile, the currency has devalued significantly, making imports more expensive and putting a strain on foreign reserves. At one point, reserves dwindled to a level barely sufficient for a few weeks of imports. External financial assistance has temporarily eased the crisis, yet systemic issues continue to undermine economic recovery. Furthermore, unregulated subsidies and unchecked fiscal mismanagement exacerbate the situation, creating an environment where economic survival depends on borrowed time.

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One of the most glaring structural flaws lies in the public sector, where loss-making enterprises drain national resources. State-owned entities such as Pakistan International Airlines and various power distribution companies accumulate debt at an alarming rate, requiring government bailouts that further strain public finances. The inability to implement meaningful reforms or privatization measures perpetuates inefficiency. Moreover, international comparisons highlight Pakistan’s lag in restructuring state enterprises, as other nations have successfully transformed their loss-making institutions through transparent privatization and operational efficiency.

The country’s debt burden presents another formidable challenge. A substantial portion of the national budget is allocated to debt servicing, leaving limited funds for development initiatives in health, education, and infrastructure. The government’s reliance on borrowing to repay existing loans creates a cycle that further deepens economic instability. Without a well-structured plan to manage debt repayments and improve revenue generation, financial constraints will continue to limit growth prospects. Moreover, excessive borrowing from external lenders diminishes economic sovereignty, as policy decisions increasingly depend on international financial institutions.

Additionally, Pakistan’s economic struggles are exacerbated by the departure of skilled professionals seeking opportunities abroad. The lack of employment prospects and an unfavorable business climate contribute to a significant talent exodus. Moreover, local entrepreneurs face numerous challenges, including bureaucratic hurdles and inadequate access to credit, preventing them from establishing businesses that could drive economic growth. Supporting small and medium enterprises through streamlined regulatory frameworks and financial incentives would not only create employment opportunities but also reduce dependency on imports by fostering local production.

A fragile tax system further complicates economic recovery. Pakistan’s tax-to-GDP ratio remains among the lowest globally, nearly 9%, reflecting a narrow tax base and widespread evasion. Despite repeated efforts, successive administrations have failed to implement effective tax reforms. Moreover, entire sectors, including real estate, retail, and agriculture, remain largely untaxed, shifting the financial burden to salaried individuals and indirect taxation. Expanding the tax net to ensure equitable contributions from all segments of society would generate much-needed revenue for public services and development projects.

The energy sector presents another pressing concern, particularly in the form of payments to independent power producers. The government remains obligated to compensate these producers, regardless of their actual electricity consumption, which strains the country's limited foreign reserves. Moreover, the reliance on expensive imported fuel for power generation further exacerbates economic vulnerabilities. A shift towards renewable energy sources and efficient power sector management would significantly alleviate financial pressures while promoting long-term sustainability.

While the challenges appear daunting, they are not insurmountable. However, meaningful economic recovery requires bold decisions and a departure from short-term political considerations. Privatizing inefficient state-owned enterprises would reduce fiscal liabilities and attract foreign investment, provided the process is transparent and free from undue influence. Furthermore, renegotiating debt repayment terms with international creditors could give temporary relief, but such measures must be complemented by fiscal discipline to prevent further accumulation of unsustainable liabilities.

Additionally, empowering entrepreneurs and small businesses could serve as a catalyst for economic revitalization. Encouraging local manufacturing through targeted incentives would reduce reliance on imports, improving the balance of payments. Moreover, facilitating access to credit for business ventures would stimulate job creation and contribute to economic diversification. Strengthening trade policies to enhance export competitiveness would further support long-term growth, provided domestic industries receive the necessary support to compete on a global scale.

Reforming the taxation system remains essential. Implementing progressive taxation and broadening the tax base would create a more balanced revenue structure, reducing dependence on external borrowing. Furthermore, decentralizing tax collection responsibilities to local governments could enhance efficiency, as authorities with regional knowledge are better positioned to enforce compliance. Addressing tax evasion and streamlining collection mechanisms would generate substantial resources for infrastructure and social development.

Energy sector improvements must also take priority. Investing in renewable energy projects, such as solar and wind power, would reduce reliance on costly fossil fuel imports. Moreover, completing long-delayed regional energy projects could enhance energy security and stabilize industrial production costs. Reducing inefficiencies in power distribution, particularly by addressing issues related to circular debt, remains crucial for ensuring financial sustainability in the energy sector.

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A fundamental issue hindering progress is the lack of policy continuity. Economic decisions often shift with changes in political leadership, leading to inconsistency and uncertainty. Establishing long-term economic strategies that are insulated from political cycles would foster investor confidence and provide a stable foundation for sustainable development. Moreover, public trust in economic policies can only be restored through transparency and accountability, ensuring that reforms are not manipulated for short-term electoral gains.

Pakistan stands at a defining moment in its economic trajectory. The consequences of inaction are dire, as persistent financial instability will continue to erode living standards and widen socioeconomic disparities. However, the opportunity for meaningful reform remains within reach. Implementing decisive measures in privatization, tax reform, debt restructuring, and energy management could transform the economic landscape. Moreover, fostering entrepreneurship and strengthening export-oriented industries would lay the groundwork for sustainable growth. Ultimately, success depends on the willingness to prioritize national interests over political expediency, recognizing that long-term stability requires making immediate and difficult decisions. The path forward demands bold leadership, unwavering commitment, and a fundamental shift in economic governance. Without these changes, Pakistan risks remaining trapped in perpetual financial distress, unable to realize its full potential.

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1 July 2025

Written By

Sir Ammar Hashmi

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Author | Coach

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1st Update: June 30, 2025 | 2nd Update: June 30, 2025 | 3rd Update: July 4, 2025

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