Potential of Pakistan's economic governance, ditched by malpractices of ruling

elites, has been undermined, leading to economic stagnation.The governance crisis in

Pakistan is deeply rooted in a political landscape characterized by corruption,
nepotism, and inefficiency. This crisis manifests itself in the ineffective management
of resources and failure to implement sound economic policies that could promote
sustainable growth. Economic activities are often stifled by Neo-imperialistic
behavior of these elites, who have effectively altered landscape of macro-economy to
suit their interests. These modern colonizers shape economic policies that perpetuate
crony capitalism, thereby isolating majority of population from benefits of growth and
development. Consequently, Pakistan’s economic framework is consistently
manipulated to serve a small, powerful elite, limiting innovation and discouraging
entrepreneurship, which are essential for economic advancement. Key state
institutions in Pakistan are weak and inefficient, failing to counter overwhelming
influence of these entrenched elites. This systemic failure has led to a stagnant
economy characterized by slow growth rates, high unemployment, and a glaring lack
of competitiveness on global stage. The effects of governance crisis are evident in
widespread poverty and limited access to essential services, which further exacerbate
socioeconomic divide in the country. Historically, Pakistan's economic governance
has been plagued by mismanagement and external dependence since inception. The
state's reliance on foreign aid and loans, coupled with internal corruption and political
instability, has prevented country from charting an independent and sustainable path
for economic growth. Thesis: Poor economic governance has derailed Pakistan's
economy, which can be reshaped by employing a multilateral diplomatic approach
aimed at fostering inclusive growth and equitable resource distribution.

The persistent stagnation in Pakistan's economic growth is deeply rooted in

country's poor economic governance, which serves as primary incubator for
underdevelopment. Economic policies, designed and maintained by elite interests,
have prioritized short-term gains over long-term sustainability, leaving structural
deficiencies unaddressed. The absence of innovation-driven policies and equitable
resource distribution has further entrenched inequality, ensuring that economic
benefits remain concentrated within a narrow elite class. As a result, Pakistan’s
macroeconomic landscape has become trapped in recurring cycles of crises such as
balance of payment issues and reliance on external funding, that hinder any real
progress toward self-sustained growth. This poor governance has crippled efforts to
foster foreign direct investment (FDI), limiting Pakistan's capacity to integrate into
global economy effectively. Exclusionary nature of these policies discourages
inclusive growth, as state institutions fail to implement reforms that would provide
broader access to economic opportunities. In contrast, countries with stronger
governance frameworks and inclusive policy environments have shown consistent
progress. Pakistan, however, remains mired in economic stagnation due to the
dominance of exclusive interests, poor resource management, and systemic
inefficiencies. Consequently, poor governance not only incubates stagnant growth but
perpetuates a vicious cycle of economic under performance and dependence.
Pakistan’s economic growth has stagnated due to arrested progress of its
Structural Adjustment Program (SAP), a key factor in its poor economic governance.
Despite efforts to implement reforms, Pakistan's GDP contracted by 0.6% in FY23
and is expected to recover marginally to 1.7% in FY24. External pressures like rising
debt, inflation, and poor investor confidence have deepened the economic crisis. The
IMF bailout in 2023 failed to stabilize the economy fully due to underlying fiscal
weaknesses, pushing country into cycles of borrowing without structural change.
Public debt has now reached 82.3% of GDP, a level that severely limits fiscal
flexibility. The SAP, aimed at stabilizing economy and promoting structural reforms,
has struggled due to Pakistan's deeply entrenched political and economic
inefficiencies. Frequent political instability and elite control over key economic
sectors have obstructed necessary policy adjustments, causing economic stagnation.
The failure to implement effective governance reforms has left economy vulnerable to
shocks, reducing growth potential and discouraging private investment. High debt-
servicing costs and reduced development spending have further compounded these
issues, crowding out productive investments needed for sustainable growth. Without
addressing these structural inefficiencies through genuine reform of economic
governance and reduced elite interference, Pakistan's growth potential will remain
stifled, exacerbating its current economic stagnation.
The concentration of wealth in Pakistan has undermined economic diversity
and contributed to stagnation. According to a recent report from the World Bank,
Pakistan's wealth inequality is growing, with the richest 20% of the population
controlling nearly 45% of the country's income. The lack of equitable distribution has
been further exacerbated by policies that favor large businesses and landowners,
leaving smaller enterprises and marginalized groups without access to economic
resources. The agricultural sector, which employs nearly 40% of labor force, remains
controlled by small elite of feudal landlords, limiting productivity growth. That
concentration of wealth restricts economic growth by preventing flow of resources
into more dynamic and productive sectors. Wealthy elites tend to invest in non-
productive assets like land and luxury real estate, which does little to stimulate
broader economic activity. Meanwhile, smaller businesses, which are essential for job
creation and innovation, struggle due to limited access to credit and financial markets.
This dynamic creates a vicious cycle where economic growth is stifled, and economy
remains dependent on narrow base of industries and income sources. This lack of
competition and innovation driven by wealth concentration further limits country's
ability to grow sustainably. Breaking this cycle of wealth concentration through
equitable policies, progressive taxation, and investment in SMEs is critical for
reversing Pakistan’s economic stagnation. Without such reforms, economy will
continue to underperform, trapping majority of population in poverty while allowing
elite to consolidate their economic power.
Controlled trade policies in Pakistan have contributed to economic stagnation
by limiting market access and stifling competition. Pakistan’s restrictive trade regime,
characterized by high tariffs, non-tariff barriers, and over-reliance on protectionist
policies, has negatively impacted its economic growth. In 2023, Pakistan's average
tariff rate stood at 11.4%, one of highest in the region, discouraging imports and
hurting local industries that rely on imported raw materials. Additionally, complex
regulatory frameworks and high costs of doing business have hindered export
competitiveness, resulting in trade deficit of $18.5 billion for FY23. The restrictive
nature of Pakistan’s trade policies discourages innovation and growth in domestic
market. By protecting inefficient industries, trade barriers limit incentive for
businesses to become more competitive, both domestically and internationally. This
inward-focused approach has prevented diversification of Pakistan’s export base,
keeping economy reliant on low-value exports such as textiles, which account for
over 60% of total exports. Furthermore, inability to integrate fully into global value
chains has prevented Pakistan from benefiting from technological advancements and
foreign investment, exacerbating its economic stagnation. To break free from this
stagnation, Pakistan needs to shift towards more liberalized trade policies that
promote competitiveness and market diversification. By reducing tariffs, simplifying
regulations, and encouraging export-oriented industries, Pakistan can stimulate
economic growth and improve its standing in the global economy.
The persistently high circular debt in Pakistan’s power sector has significantly
contributed to economic stagnation by increasing energy costs, disrupting supply
chains, and deterring investment. As of 2024, Pakistan’s circular debt has reached a
record high of Rs 2.8 trillion. Despite a 51% increase in electricity tariffs, debt
continues to grow, largely due to inefficient subsidy payments and poor debt
management. IMF’s threshold for debt control has been exceeded, further
complicating efforts to stabilize energy sector. This mounting debt burdens
government and energy producers, leading to frequent power shortages, which disrupt
industrial productivity. Additionally, higher electricity tariffs, intended to manage
debt, have made energy unaffordable for consumers and businesses, raising
production costs and reducing competitiveness. The diversion of fiscal resources to
service this debt means less investment in infrastructure and development,
aggravating Pakistan’s already low economic growth rate. This circular debt crisis
perpetuates cycle of economic stagnation. By driving up production costs and
deterring both foreign and local investments, it stagnates economic growth and
hampers Pakistan's ability to develop a competitive, diversified economy. Effective
debt management and energy sector reforms are essential to break this cycle and
revive economic growth.
Lack of economic elasticity in Pakistan contributes significantly to its stagnant
economic growth, as key sectors struggle to adjust to domestic and global economic
shocks. Economic elasticity refers to how responsive an economy is to changes in
demand, supply, or external factors like global price fluctuations. In Pakistan, sectors
such as agriculture and manufacturing are particularly inelastic. In 2024, industrial
and agricultural sectors underperformed due to inefficient resource allocation and
poor policy adjustments. Despite an 11.5% increase in exports, trade deficit remains
high at $22.1 billion, a sign that Pakistan’s economy struggles to adapt to shifts in
global market. That inelastic nature of Pakistan's economy results from entrenched
structural inefficiencies, including poor regulatory frameworks and outdated industrial
practices. For instance, agricultural sector, which contributes significantly to GDP,
has been slow to modernize, limiting its ability to adapt to market demands or
technological advancements. Moreover, heavy reliance on imports, such as petroleum
products and raw materials, exposes Pakistan to external price shocks, limiting its
ability to grow sustainably. This inability to adjust leads to frequent trade imbalances,
driving inflation and stifling economic growth. Without improving elasticity of its
economy by implementing reforms in key sectors and enhancing technological
integration, Pakistan will continue to face stagnation. Increasing economic flexibility
through policies that encourage innovation, modernization, and market responsiveness
is essential to ensure sustained growth.
Pakistan's stagnant GDP growth rate in 2024 reflects the broader issues
stemming from poor economic governance. The country's real GDP growth for FY
2023-24 was recorded at 3.2%, falling short of the government's target of 3.5%. This
underperformance is largely due to a slump in industrial production, which contracted
by 1.15%. Other key sectors like mining, electricity, and utilities also saw a steep
decline. In contrast, agriculture showed significant growth, with a 6.36% increase,
driven by bumper wheat production. Moreover, the World Bank projects that without
comprehensive reforms in taxation, governance, and energy, Pakistan's GDP growth
will remain anemic, with forecasts estimating 1.8% growth for 2024 and 2.3% for
2025. These figures highlight manifestation of poor governance, as economy struggles
to achieve sustainable growth despite periodic gains in specific sectors. This
stagnation can be directly attributed to inconsistent economic policies, weak
institutional capacity, and corruption. Without addressing these structural issues,
Pakistan’s potential for higher economic growth remains severely constrained.
 Unemployment rate in Pakistan is projected to reach around 8% in 2024,
reflecting a significant challenge for the economy and workforce. This persistent
joblessness underscores consequences of poor economic governance, where austerity
measures and fiscal constraints have resulted in reduced public spending. As a result,
many sectors are experiencing layoffs and hiring freezes, with job creation severely
stifled. The combination of inadequate policy responses and failure to attract
investments has exacerbated crisis, entrenching millions of Pakistanis in
unemployment and underemployment. Addressing these governance failures is
essential for revitalizing labor market and fostering economic stability.
The poverty level in Pakistan has seen a concerning rise, reflecting profound
impact of economic stagnation. As of 2024, lower-middle-income poverty rate is
estimated at 40.5%, which translates to approximately 84 million individuals living
below the poverty line. This increase can be attributed to several factors, including
high inflation, limited job creation, and ongoing economic instability. Recent
economic shocks, such as COVID-19 pandemic and catastrophic floods in 2022, have
exacerbated these challenges, pushing an additional 2.6 million Pakistanis into
poverty since previous year. Consequently, rising poverty levels are a clear
manifestation of poor economic governance and structural inadequacies, hindering
progress toward sustainable growth and development in Pakistan.
Pakistan's economic stagnation has significantly impacted social services and
infrastructure development, exacerbating existing deficiencies in these critical areas.
As of 2024, country continues to face severe fiscal challenges, with public spending
being constrained by high debt servicing costs and limited revenue generation.
Government's focus on macroeconomic stabilization has resulted in under-investment
in essential services. For instance, while GDP growth rate is projected to recover
slightly, reaching around 2.5% in FY24 after a contraction, this growth is insufficient
to meet basic needs of population. Moreover, education sector remains in crisis, with
about one-third of school-age children out of school and nearly two-thirds of those
enrolled suffering from learning deprivation. In healthcare, lack of funding has led to
inadequate facilities and services, leaving many citizens without access to essential
medical care. Infrastructure, particularly in rural areas, is also lagging, with
significant gaps in transportation and sanitation systems. The cumulative effect of
these factors has contributed to persistent poverty levels, with approximately 40% of
population living below poverty line. This stagnation in social services and
infrastructure underscores dire need for effective economic governance to drive
comprehensive development in Pakistan.
The welfare dilemma in Pakistan presents a significant challenge in pathway
of good governance, particularly regarding liabilities posed by a rapidly growing
youth population and a persistently low tax base. With nearly 64% of Pakistan's
population under age of 30, according to Pakistan Bureau of Statistics, government
faces immense pressure to provide employment opportunities and essential services.
However, country’s tax-to-GDP ratio remains one of lowest in the region, at around
9%, significantly limiting government’s capacity to invest in public welfare and
development programs. This financial constraint hampers efforts to address pressing
issues such as education, healthcare, and infrastructure, further exacerbating
unemployment and social unrest among the youth. As a result, welfare dilemma not
only undermines potential for sustainable economic growth but also perpetuates a
cycle of poverty and discontent, challenging efficacy of governance and social
contract between state and its citizens.
Excessive reliance on International Financial Institutions (IFIs) is an
impediment in pathway of good economic governance in Pakistan, as it compromises
country's autonomy and undermines formulation of context-specific economic
policies. With International Monetary Fund (IMF) providing over $7 billion in bailout
package in 2024, conditions imposed often prioritize short-term fiscal stabilization
over long-term development goals. For instance, austerity measures mandated by IMF
have led to substantial cuts in public spending, notably a 12% reduction in education
funding, which adversely affects human capital development and perpetuates
socioeconomic inequalities. This dependency fosters a cycle where government
prioritizes compliance with IFI directives at expense of essential local reforms,
stifling innovation and adaptability. Moreover, reliance on external funding can
diminish public trust in government institutions, as citizens may perceive policies as
being dictated by foreign entities rather than addressing local needs. To promote
effective governance and sustainable economic growth, Pakistan must recalibrate its
approach by fostering economic self-reliance and implementing comprehensive
reforms that are aligned with unique challenges and opportunities within its domestic
context.
Climate risk poses a significant challenge to good economic governance in
Pakistan, exacerbating existing vulnerabilities and hindering sustainable development.
As one of the countries most affected by climate change, Pakistan faces severe threats
from extreme weather events, including floods, droughts, and heatwaves. According
to the Global Climate Risk Index 2023, Pakistan ranks among the top ten countries
most impacted by climate-related disasters, with devastating floods in 2022 causing
damages estimated at $30 billion. These climate risks disrupt agricultural
productivity, which employs nearly 40% of the workforce and contributes
significantly to GDP, leading to food insecurity and increased poverty. The lack of
effective climate adaptation and mitigation strategies further compounds these
challenges, as inadequate infrastructure and investment in disaster resilience
exacerbate economic impact of climate events. Additionally, climate-related
vulnerabilities can strain public resources, diverting funds away from essential
services and infrastructure development, thereby undermining governance
effectiveness. To address these pressing issues, Pakistan must integrate climate risk
into its economic planning and governance frameworks, prioritizing investments in
climate-resilient infrastructure, sustainable agriculture, and disaster preparedness. By
adopting a proactive approach to climate governance, Pakistan can enhance its
resilience to climate risks and promote sustainable economic development, ultimately
fostering a more robust and adaptive economy.
Unskilled human capital is major barrier in way of good economic governance
in Pakistan, hindering both productivity and sustainable growth. Despite Pakistan’s
large youth population, over 64% of its citizens are under the age of 30, as per the
Pakistan Bureau of Statistics, a significant portion lacks the necessary skills to
compete in a globalized economy. Ranked poorly on World Economic Forum’s
Human Capital Index, country faces widened skill gap, particularly in critical sectors
such as technology, manufacturing, and services. This gap directly impacts economic
growth. Pakistan Software Export Board estimates that IT sector could contribute over
$10 billion annually if supported by a properly skilled workforce. Instead, many
industries face a shortage of qualified professionals, leading to underperformance and
missed economic opportunities. Furthermore, youth unemployment remains high, at
8.3% in 2023, exacerbating social and economic disparities. Addressing this issue
requires targeted reforms in education and vocational training, as current system fails
to equip workforce with relevant skills. Without strategic investment in human capital
development, Pakistan risks stagnating in low-value economic activities, thus
hindering long-term governance reforms and economic progress. Prioritizing skills
enhancement and workforce training will be critical for improving governance and
fostering sustainable growth.
Crony capitalism, defined by consolidation of economic power among a few
elites, presents a formidable challenge for achieving good economic governance in
Pakistan. This status-quo perpetuates inequality and stifles competition, as influential
business figures often collaborate with political leaders to maintain favorable
conditions that serve their interests. Pakistan Bureau of Statistics reveals that around
20% of the population controls nearly 40% of country’s wealth, reflecting a deeply
entrenched system that prioritizes privileges of a few over welfare of majority. The
implications of crony capitalism extend beyond mere wealth disparity; it cultivates an
environment of corruption and cronyism, undermining legitimacy of governance
structures. According to Transparency International Corruption Perceptions Index,
Pakistan ranked 140th out of 180 countries in 2022, highlighting the pervasive
influence of corrupt practices stemming from this economic model. This situation
leads to misallocation of public resources, with essential services such as education
and healthcare suffering from chronic underfunding. Moreover, lack of level playing
field inhibits innovation and entrepreneurship, as smaller firms struggle to compete
against entrenched interests. For Pakistan to transition toward effective economic
governance, it is imperative to dismantle foundations of capitalism. This can be
achieved through implementation of transparent regulatory frameworks, promotion of
competition, and policies that foster inclusive economic growth, ensuring that all
citizens have equitable access to opportunities and resources.
Achieving good economic governance in Pakistan is possible but requires
addressing key challenges, including unskilled human capital, climate risk, crony
capitalism, excessive reliance on international financial institutions, and welfare
dilemma. To overcome these obstacles, Pakistan must embrace economic cultural
diversification, promoting an inclusive economy that leverage strengths of its diverse
population and fosters innovation across various sectors. This can be supported by a
multilateral diplomatic approach, engaging with a broader range of international
partners to attract foreign investment and share best practices for sustainable
development. Improving corporate governance is essential for dismantling entrenched
systems of crony capitalism, ensuring accountability, and promoting fair competition.
By enhancing transparency and regulatory frameworks, government can create an
environment that supports both local and foreign businesses, fostering economic
growth. Additionally, increasing research and development (R&D) investment is
crucial for building skilled workforce and addressing local challenges through
innovative solutions. By prioritizing R&D, Pakistan can enhance its competitive edge,
leading to greater productivity and economic resilience. In summary, through targeted
reforms and strategic initiatives, Pakistan can pave the way for good economic
governance and sustainable growth by improving quality of life for its citizens.
Improving corporate governance is pivotal remedy for Pakistan to achieve
good economic governance, particularly in providing suitable economic environment
and ensuring security for investors. Strengthening regulatory frameworks will create
transparent and predictable business environment, which is essential for attracting
both domestic and foreign investment. By implementing clear and fair regulations,
businesses can operate with confidence, knowing that their rights and interests are
protected. Moreover, effective corporate governance helps mitigate risks associated
with corruption and mismanagement, thereby increasing security for investors.
Establishing independent regulatory bodies, such as Securities and Exchange
Commission of Pakistan (SECP), to oversee corporate practices and enforce
compliance will build stakeholder trust and encourage ethical conduct. Additionally,
promoting corporate social responsibility (CSR) initiatives can further enhance
business climate by aligning corporate goals with community development, fostering
goodwill, and contributing to more stable socioeconomic environment. By prioritizing
corporate governance reforms, Pakistan can significantly improve its ease of doing
business rankings, ultimately leading to sustainable economic growth and more secure
investment landscape for all stakeholders.
Economic cultural diversification is essential for Pakistan to achieve good
economic governance by promoting resilience and inclusivity. By embracing diverse
cultural and economic practices of various regions, the country can stimulate
innovation and expand its range of products and services. This diversification reduces
dependence on limited number of industries, enhancing adaptability to global market
fluctuations. Encouraging local entrepreneurship among different cultural
communities empowers marginalized groups and promotes social equity. Integrating
traditional industries, such as handicrafts and agriculture, with modern technology can
create new market opportunities while preserving cultural heritage. Additionally,
investing in cultural tourism can attract foreign investment and generate revenue.
Ultimately, leveraging Pakistan’s rich cultural diversity fosters dynamic economy,
contributes to sustainable development, and strengthens good governance.
Exploration of energy resources is essential for Pakistan to achieve good
economic governance and sustainable development. With increasing energy demands,
country faces significant challenges due to its heavy reliance on fossil fuels,
particularly natural gas and oil. Diversifying its energy portfolio by investing in
renewable resources like solar, wind, and hydro power is crucial. Alternative Energy
Policy 2020 aims to raise share of renewable to 20% by 2025, enhancing energy
security and reducing carbon emissions. Additionally, developing domestic coal
reserves and establishing a robust regulatory framework can attract foreign
investment, ensuring a stable energy supply and promoting economic growth.
Increasing adoption of Neo-Public Management (NPM) practices from 40% to
higher levels is essential for enhancing public sector efficiency in Pakistan. NPM
focuses on results-oriented management, accountability, and incorporating private
sector techniques to improve service delivery. By prioritizing performance
measurement and customer satisfaction, public institutions can become more
responsive to citizens' needs. Training government officials in modern management
practices, promoting transparency, and encouraging stakeholder participation are vital
steps in this process. Additionally, leveraging technology to streamline operations can
reduce bureaucratic inefficiencies. Embracing NPM principles will strengthen
governance, optimize resource utilization, and ultimately enhance public service
outcomes for citizens.
A multilateral diplomatic approach is crucial for Pakistan to enhance its
economic governance and address global challenges. By engaging with multiple
international partners and organizations, Pakistan can leverage diverse resources and
expertise to tackle issues like economic development and climate change.
Participation in regional and global forums, such as United Nations and New
Economic Groups, allows Pakistan to influence policy discussions and access funding
for development initiatives. Building partnerships with countries that share similar
economic goals can facilitate technology transfer and investment opportunities.
Ultimately, this approach will diversify economic ties, enhance national security, and
create more stable environment for sustainable growth.
Increasing investment in research and development (R&D) is vital remedy for
Pakistan to enhance economic governance and foster sustainable growth. By
allocating more resources to R&D, country can drive innovation, improve
productivity, and develop competitive industries. This investment can lead to creation
of advanced technologies and solutions that address local challenges, particularly in
agriculture, energy, and healthcare. Encouraging collaboration between academia,
industry, and government can further enhance R&D efforts, leading to knowledge
transfer and commercialization of research outcomes. By prioritizing R&D, Pakistan
can build a skilled workforce, stimulate economic diversification, and ultimately
strengthen its position in global market.
In conclusion, achieving good economic governance in Pakistan requires a
multifaceted approach that addresses key challenges of unskilled human capital,
climate risk, crown capitalism, excessive reliance on international financial
institutions, and welfare dilemmas. By prioritizing corporate governance, fostering
economic cultural diversification, exploring energy resources, embracing a
multilateral diplomatic approach, and significantly increasing investment in research
and development, Pakistan can create a more resilient and inclusive economy. These
strategies will not only enhance transparency and accountability in governance but
also stimulate innovation and sustainable growth. As the country navigates its path
toward economic stability, a commitment to these remedies will be essential in
improving quality of life for its citizens and securing a prosperous future.