Opinion | Pakistan’s Economic Depletion: Challenges, Reforms and the Search for Stability

The economy of Pakistan has been through a phase of long-standing financial strain characterized by low growth, high financing needs, inflationary pressures, and tough external environment. However, referring to the state of affairs as that of economic decline alone would be ignoring the part of the story where Pakistan has been taking steps for stabilizing and regaining confidence. As per the estimates of International Monetary Fund, Pakistan’s economic activities have improved during the initial stages of fiscal year 2025–26 with real GDP growth estimated to stand around 3.6 percent for the year. Improvement in economic activities after facing a lot of macroeconomic stress is an important step in understanding the trajectory of the economy of Pakistan. However, Pakistan continues to suffer from many vulnerabilities with high financing needs, reliance on external inflows and sensitivity to oil price movements and financial conditions. High public debt levels and constrained fiscal space limit the availability of fiscal space to make large expenditure. Hence, Pakistan is not only concerned about achieving economic stability but also ensuring sustainable and productive growth.

One of the main factors behind the economic problems of Pakistan is the pressure on its external position. Foreign exchange must be available for the purchase of essentials like fuel, machinery, and other inputs. Exports, and other sources of foreign earnings, are needed to cover these expenditures. Remittances by foreign workers have been an important source of strengthening the foreign exchange position of Pakistan. The IMF report suggests that remittances will continue to be an important source of inflows, but also mentions that Pakistan will remain vulnerable to changes in energy prices and foreign financing. The higher the international price of oil and gas, the higher would be the import bill, creating a burden on the current account and price levels. It is, therefore, very necessary to diversify the economic activities. Increasing the number of items of exports, increasing productivity, and encouraging investments will lead to diversification and eventually will improve the external position. Diversified exports will enable Pakistan to take advantage of international trade and generate jobs, rather than depending heavily on external finances when the internal economy fails.

The energy sector forms yet another crucial aspect of the economy. Efficient and affordable energy is needed by the manufacturing units, businesses, agricultural sector, transport and the people. On the other hand, there can be financial issues within the energy sector which result in obligations and ultimately have an impact on the overall economy. According to IMF, there are certain reforms that can be implemented to enhance the viability of Pakistan’s energy sector. These reforms include the enhancement of efficiency of the distribution of electricity, reduction in loss of power, improvement in collection system and investments in power generation. All of these aspects can contribute towards creating a better economic environment for the businesses. There is huge potential in Pakistan when it comes to utilizing the renewable energy resources, especially solar and other types that can be used in the geographical location of Pakistan. This diversification will offer certain economic advantages along with environmental ones. Industries will benefit from the availability of energy because their planning and competitiveness will depend upon it. The economic recovery will thus depend not just on the financial measures but also on the development of those systems which will determine the efficiency of resource utilization.

Yet another issue to be considered is how Pakistan may shift from the stage of stabilization to the stage of sustainable economic growth. Fiscal discipline can help restore the country’s credibility and mitigate its financial risks, but sustained economic growth calls for the development of productive capacities. Large and young population in Pakistan represents a valuable resource that needs to be harnessed through proper education, training, health care and entrepreneurship. Greater engagement of young people in technology, industry, modern agriculture and services will contribute to the development of the country’s productive capacities. Enterprises of smaller scale also represent an important resource, as they create employment and integrate local communities into wider markets. Improved access to finance, streamlined procedures and greater adoption of technology will help them develop. Agriculture is another sector where productivity improvements may bring broad benefits to Pakistan. Irrigation, storage, processing and marketing of the products may increase their value and reduce their loss. Therefore, the Pakistani economy has several potential sources of growth, but their development requires consistency in policy making. Economic power is rarely built on one particular policy, but rather on the combination of institutional stability, productive investments, human resources and favorable business climate.

The most recent economic experience of Pakistan is another proof of the interconnectedness between the economy of each country and the events taking place in the international arena. Fluctuations in international commodity prices, interest rates, and geopolitical relations can affect the economies of countries, whose economies are highly dependent on outside finance and sources of energy. As mentioned in the IMF’s report for 2026, higher commodity prices and weak external demand may affect Pakistan’s growth, inflation, and current account, but, at the same time, improved policy implementation and structural reforms can increase resilience. Therefore, economic diversification is crucial. It is easier for an economy that has diversified exports, productive industries, good energy balance, and well-developed financial markets to sustain external shocks. In this sense, Pakistan’s economic stabilization can become a basis for further development. But this success needs to be maintained and to pay proper attention to fiscal management, revenues, investments, and productivity. The ultimate goal here is to develop an economy in which growth would take place due to domestic productive capabilities rather than emergency finance. With all the reforms and investment in its people and global economic activities, Pakistan possesses plenty of economic potential.

Writer’s Note: The writer may be reached at paulayan7544@gmail.com for comments, feedback and correspondence.