Pakistan’s economic recovery: Stabilised on paper, struggling in reality
At first glance, the Asian Development Bank’s (ADB) recent projections appear to mark a turning point for Pakistan’s economy. With a forecasted real GDP growth of 2.5% in the fiscal year 2025—rising to 3.0% in 2026—and inflation expected to ease to 6.0% in FY2025 and 5.8% the year after, the numbers tell a story of cautious optimism. These improvements are attributed to fiscal and structural reforms introduced under the IMF’s Extended Fund Facility (EFF), including changes in tax policy, exchange rate stabilisation, and energy sector restructuring.
But optimism, as it turns out, is unevenly distributed. While the macroeconomic numbers suggest stabilisation, they fail to reflect the reality of stagnant wages, sluggish industrial activity, and widening socioeconomic gaps. The recovery, it seems, has yet to trickle down.
Pakistan in the South Asian Context
Compared to its South Asian peers, Pakistan’s projected recovery remains fragile. India is expected to post a robust GDP growth of 6.7% in FY2025 and 6.8% in FY2026—figures nearly triple that of Pakistan. Even Sri Lanka, still emerging from a sovereign debt crisis, is forecast to grow by 3.9% and 3.4% over the same period. Bangladesh, long cited as a model for development in the region, is expected to clock 3.9% growth in FY2025, with inflation dropping to 5.1%.
In contrast, Pakistan’s inflation averaged 29.2% in 2023, with a projected decline to 6.0% in FY2025. Although this drop seems dramatic, the damage to real wages and household purchasing power has already been done. Meanwhile, countries like Bhutan and Maldives—despite their smaller economic scale—are forecast to grow by 8.5% and 5.0%, respectively, outperforming Pakistan not only in stability but also in economic ambition.
Credit and Industry: Still Stuck in the Doldrums
Pakistan’s private sector credit grew to PKR 10.11 trillion in November 2024, seemingly a positive development. Yet the private sector credit-to-GDP ratio paints a darker picture: declining from 13.4% in FY2022 to just 9.0% in FY2024. Despite the State Bank’s decision to bring the policy rate down from 23% to 12%, businesses remain wary. Policy uncertainty, chronic energy price shocks, and soft consumer demand continue to suppress industrial confidence.
This crisis of confidence is most visible in the textile industry, Pakistan’s leading export sector. In Punjab, over 180 mills have closed due to unbearable electricity and gas tariffs, laying off thousands and disrupting export chains. With textiles contributing 60% of export revenue and employing a large segment of the industrial labour force, its decline is not just economic—it’s social.
The Labour Market’s Hidden Crisis
ADB data also shows that Pakistan lags significantly behind South Asian neighbors in terms of employment resilience. With youth unemployment hovering around 9.65% and female labour participation at just 22.91%, the country is underutilising a major part of its human capital. By contrast, Bangladesh, Nepal, and even India have made considerable progress in integrating women and youth into their labour markets through targeted programs and better vocational training.
This underperformance contributes to stubborn wage stagnation, where gains in GDP are not translating into higher household incomes. Inflation may be falling, but it has left a long shadow: years of soaring costs have hollowed out purchasing power. Employers, facing thin profit margins and unpredictable policies, are reluctant to raise wages—even as the cost of living remains high.
Energy Reforms: Fiscal Discipline, Public Pain
In its effort to meet IMF conditions and improve fiscal metrics, the government has scaled back energy subsidies and aligned domestic tariffs with international prices. While this has helped narrow the fiscal deficit and attracted donor confidence, the social cost has been significant. Households report spending an increasing share of their income on energy bills, even as wages remain flat.
This dynamic is creating a new kind of inequality—between those who benefit from financial stabilisation (like lenders and investors) and those who bear its brunt (workers and small businesses). In regions like South Punjab and interior Sindh, energy poverty and job losses have triggered widespread discontent, further isolating economic policy from public sentiment.
A Recovery That Excludes the People
Pakistan’s projected GDP growth of 2.5% in FY2025 places it at the bottom of the South Asian league table—only ahead of Afghanistan. While inflation easing to 6.0% may ease some short-term pressure, it is not enough to revive household spending, nor does it offer solace to the millions unemployed or underpaid.
For comparison, India—despite global headwinds—is surging ahead with 6.7% projected GDP growth for FY2025 and low inflation at 4.3%. Bangladesh, recovering from a high inflation phase, expects to see price pressures ease to 5.1% alongside solid economic expansion. These trends underline how Pakistan’s reforms, though necessary, are failing to build the momentum needed for broad-based recovery.
Numbers vs. Lives
While reforms have restored a measure of macroeconomic stability, they have yet to address Pakistan’s deeper structural flaws. Wage stagnation, industrial decline, low labour participation, and skewed energy pricing continue to plague the economy. The story told by GDP and inflation figures is not the full picture—it leaves out the shopkeeper in Faisalabad, the laid-off mill worker in Multan, and the underemployed graduate in Peshawar.
Reforms may have raised hopes in financial circles, but until they raise wages and livelihoods too, the recovery will remain a headline, not a reality.
Courtesy: The Friday Times, Pakistan
