Pakistan shifts focus from stability to growth, but challenges remain

Pakistan’s economic strategy appears to be entering a new phase, shifting from four years of stabilization efforts toward a growth-focused agenda, according to the latest episode of Kamran Khan’s On My Radar.

The program argued that the federal budget for the new fiscal year signals a change in priorities, with the government seeking to build on improving macroeconomic indicators while encouraging investment and business activity.

According to the analysis, several key economic indicators have strengthened over the past year. Average inflation for the first 11 months of the fiscal year stands at 6.7%, while the Pakistani rupee has remained broadly stable at around 280 against the U.S. dollar for nearly three years. The central bank’s policy rate has fallen from 22% to 11.5%, foreign exchange reserves are at their highest level in four years, and workers’ remittances have reached record highs.

The program also highlighted recent upgrades to Pakistan’s sovereign ratings by Moody’s, Fitch and S&P. It noted that Pakistan returned to the international bond market after a four-year gap, where its Eurobond offering received stronger-than-expected investor interest.

“These indicators suggest that the foundations of economic stability are stronger than before,” Kamran Khan said.

However, the program stressed that major structural weaknesses continue to weigh on the economy.

Pakistan’s exports have remained stuck between $25 billion and $30 billion for nearly two decades, causing the export-to-GDP ratio to decline from around 16% to nearly 10%. On the investment front, foreign direct investment fell by more than 44% during the first 10 months of the current fiscal year.

The labor market also remains under pressure, with the unemployment rate reaching 7.1% and an estimated 5.9 million people out of work, according to figures cited in the program.

Savings rates were described as another area of concern. Pakistan’s savings rate has dropped to its lowest level in three decades, with households saving only 6 rupees out of every 100 rupees of income.

Against that backdrop, the budget appears to offer targeted relief measures aimed at supporting economic activity. The government has avoided introducing any major new taxes and has removed the super tax to provide relief to the corporate sector. Additional incentives have been announced for exporters, the real estate sector and salaried workers.

The income tax exemption for IT exports has been extended for another three years, concessionary financing rates have been reduced and other incentives retained. According to the program, these measures are intended to support business activity, restore private-sector confidence and accelerate economic growth.

Kamran Khan noted that the government is confident the policy package will deliver results, referring to claims made by Special Assistant to the Prime Minister on Industries Haroon Akhtar Khan during the previous day’s program regarding future growth in GDP, exports and Chinese investment.

Despite what the program described as a positive policy direction, it argued that the real test will be implementation.

“Exports, investment, employment and savings are the sectors where the numbers are still showing weakness,” Kamran Khan said. “Until there is visible improvement in these areas, the journey toward sustainable growth will remain incomplete.”

The program said businesses, investors and ordinary Pakistanis are now waiting to see whether the government can convert recent macroeconomic stability into broader economic expansion, as the long-term strength of the economy will ultimately depend on performance in those sectors.

The episode also featured comments from Interloop Limited Chairman Musadaq Zulqarnain, Systems Limited Pakistan CEO Asif Peer and Al Meezan Investment CEO Imtiaz Gadar.