The economy of Pakistan urgently needs a comprehensive reset to break the recurring cycle of near-defaults followed by reliance on external lifelines, particularly from the IMF. The government is once again preparing to sign an IMF deal, celebrating more debt while ignoring the core issues that have led to this economic crisis. The country cannot afford to keep using the same strategies and expecting different results; such approaches only deepen the crisis.
Pakistan’s foreign debt problem is staggering. Between 2008 and 2023, the country borrowed $129 billion but repaid $136 billion, resulting in a net loss of $7 billion. Despite this, Pakistan still owes over $130 billion, and the debt is projected to rise further. The IMF estimates that $124 billion will be needed over the next five years, mostly to repay existing debt and interest. This cycle of borrowing to repay debts is unsustainable and undermines long-term economic stability.
The current approach, which prioritizes avoiding default through new loans, is short-sighted. Real economic growth, especially in exports and industrial capacity, is the only way to escape this trap. Without structural reforms, Pakistan will see its debt swell to $150 billion in five years, exacerbating poverty and further damaging its industrial base.
To address these issues, Pakistan must focus on industrialization and export growth, recognizing that its stagnant export levels are tied to a small and uncompetitive industrial base. Manufacturing accounts for over $16 trillion of global trade, and Pakistan must enhance its capacity in this sector to boost its economy. Industrialization requires a long-term strategy involving both the public and private sectors, aiming to gradually shift from low-tech, labor-intensive goods to more advanced production.
To make this transformation possible, Pakistan needs thousands of competitive firms across diverse sectors. The private sector must be supported with skills development, R&D, logistics, and financing to increase efficiency and global competitiveness. A sustained growth strategy requires the creation of new goods and services, as well as an upward movement in the value chain.
However, Pakistan has regressed in its industrial transformation, with the share of primary goods in exports increasing rather than diversifying. The government must remove sector-specific barriers that hinder exports and facilitate SMEs in both rural and urban areas. SMEs are crucial for job creation and innovation and can significantly boost domestic demand without heavy reliance on imports.
A key challenge facing Pakistan is the lack of skilled labor. Millions of young people enter the job market yearly without adequate skills or opportunities. This demographic dividend can only be leveraged through massive investments in vocational training, technical education, and job creation in labor-intensive sectors.
In addition, the government must pivot towards strengthening new-age industries like back-office processing, engineering services, freelancing, and fintech, where Pakistan’s young workforce could excel with the right support in skills, infrastructure, and financing. These industries are crucial to integrating Pakistan into global value chains and capitalizing on modern economic trends, where profits increasingly come from talent and innovation rather than low-cost production.
The government also needs to modernize its approach to governance and the business climate. Misgovernance and inefficient policies are major obstacles to growth. Addressing these does not require large capital outlays but rather leadership, reform, and a shift in mindset. By focusing on improving governance and reducing bureaucratic hurdles, the entrepreneurial potential of Pakistan’s people can be unleashed.
Ultimately, Pakistan's economic woes are not a result of a lack of capital but rather poor policy choices and a failure to organize and innovate. The path forward must include a national development program focused on industrialization, export growth, SME support, and upskilling the workforce. Only by addressing these fundamental issues can Pakistan break free from its debt cycle and ensure sustainable, long-term growth.
