Saturday, Jan 24, 2026 | 04 Shaban 1447
Saturday, Jan 24, 2026 | 04 Shaban 1447
Pakistan’s economy has had a difficult year, marked by slow growth, heavy debt, ongoing inflation pressures, and a reform agenda that has required both the policymakers and citizens to adapt. As the new year begins, data and developments offer a picture of cautious progress mixed with persistent concerns, leaving the country focused on stabilising its foundations and preparing for a more sustainable future.
Economic growth remained one of the main points of concern. In the fiscal year ending June 2025, Pakistan’s GDP expanded by approximately 2.7 per cent, slightly higher than the previous year but still below the government’s original target of 3.6 per cent. This level of growth, while modestly encouraging, was insufficient to significantly reduce unemployment or improve the living standards for a large portion of the population.
The services sector showed moderate improvement, supported by expanding retail, telecommunications, and technology services, while agriculture struggled to deliver strong output due to weather-related disruptions, including heatwaves and floods, and structural challenges such as low mechanisation, water scarcity, and limited access to modern inputs. Industry also showed some signs of recovery, driven by slightly better energy supply and demand in certain sectors but capacity constraints, rising financing costs, and structural inefficiencies continued to hold back broader industrial performance.
Even though international organisations predict that growth may gradually improve in the coming years, the current pace remains too slow to absorb the thousands of new workers entering the labour market annually. Pakistan has a youthful demographic profile, with thousands of young people seeking employment each year, making the challenge of job creation particularly pressing. Slow growth limits the country’s ability to generate enough quality employment opportunities, leaving many young people in precarious or informal work arrangements. This has wider implications for social stability, as unemployment among youth can exacerbate frustrations, reduce household income, and slow overall development.
Inflation, which has been a major burden for the households in recent years, saw significant relief in 2025. After long periods of double-digit increases, particularly for essential items such as food, fuel, and electricity, inflation finally dropped to around 4.7 per cent, providing a much-needed reprieve for households.
This improvement was largely due to tighter monetary policy, better control over currency volatility, and moderation in the global commodity prices. Families across the country felt some benefit from stabilising prices, particularly those who had struggled to cope with the rapid cost increases over the preceding years. However, the relief remains fragile. There are persistent concerns that inflation could rise again if global energy prices increase, or if the rupee weakens under pressure from foreign exchange demands. Further, while the overall inflation fell, the costs of certain items such as housing, healthcare, and education continued to rise. This uneven impact means that many low-income households remain financially stretched, with wages rising too slowly to fully compensate for the erosion of purchasing power experienced in previous years.
The government’s fiscal position has remained a challenge. Pakistan continues to struggle with a narrow tax base, high spending requirements, and heavy interest payments on its growing stock of debt. Reforms to improve revenue collection have shown some progress, bringing more taxpayers into the system and introducing new measures to increase compliance. Despite this, the gap between government revenue and spending remains significant, constraining the state’s ability to invest in infrastructure, education, health, and social protection.
Public debt reached alarming levels in 2025, with the total government debt estimated at approximately $286.8 billion and a debt-to-GDP ratio approaching 70 per cent, a level that many economists consider high for a developing economy. Servicing this debt consumes a large portion of government revenue, reducing the resources available for the development projects and limiting the economic choices available to the policymakers. The high debt burden leaves the country more vulnerable to external shocks and limits the government’s flexibility in responding to crises.
On the external front, Pakistan managed to stabilise its foreign exchange reserves at times and even recorded a brief current account surplus during the year, amounting to around $1.9 billion. This was largely due to controlled imports and strong inflows of remittances from overseas Pakistanis, which exceeded $38 billion for the year.
However, sustaining this balance has been challenging. Rising demand for imported fuel and machinery, combined with sluggish export growth, caused the trade deficit to widen once more, putting fresh pressure on external accounts. Exports have long struggled with limited diversification and competitiveness. Pakistan continues to rely heavily on textiles, a sector vulnerable to global demand fluctuations, rising production costs, and competition from other countries. To build resilience, Pakistan must expand into new markets and industries while improving product quality by adopting modern technologies and making energy more affordable. Remittances remain a stabilising factor, providing foreign currency that supports imports and sustains households across the country.
Millions of people continue to face daily challenges such as paying bills, accessing healthcare, and ensuring their children receive education. Without stronger and more inclusive economic growth, efforts to address these inequalities will remain slow
Structural reforms have become increasingly important as the year progressed. The government pushed to transform loss-making state-owned enterprises and attract private investment. One major step was the sale of a controlling stake in Pakistan International Airlines to private investors, a move intended to reduce the financial burden caused by inefficient public entities and encourage greater private sector efficiency. Reforms also targeted energy pricing, subsidy rationalisation, and improvements in state governance. These measures are closely linked to Pakistan’s commitments under international financial support agreements. While such reforms are necessary for recovery, they come with social and political costs, especially when they result in higher prices for fuel or electricity in the short term. This has created a delicate balance between meeting fiscal requirements and protecting citizens from additional hardships.
Employment patterns highlight the broader challenges facing the economy. Urban areas have seen limited job creation in technology, retail, and services, but the growth has not been sufficient to absorb the growing number of job seekers. In the rural areas, underemployment remains widespread, particularly when agricultural demand is low. Youth unemployment is a particularly pressing concern, threatening social stability and weakening long-term economic prospects when young people struggle to build careers or contribute productively. Private investment, a key driver of long-term growth, remained subdued throughout the year. Businesses often cite political uncertainty, high financing costs, inconsistent regulations, and infrastructure constraints as reasons for caution.
To improve investors’ confidence, the government must provide consistent economic policies, transparent governance, and clear implementation of reforms. New investments in energy capacity, digital infrastructure, and industrial zones could serve as catalysts for growth if properly executed.
The social effects of the economic situation have been stark. A significant portion of the population continues to struggle with poverty and limited access to high quality public services. The unequal impact of economic conditions has widened the gap between higher income groups and those living near subsistence levels. Millions of people continue to face daily challenges such as paying bills, accessing healthcare, and ensuring their children receive education. Without stronger and more inclusive economic growth, efforts to address these inequalities will remain slow. Climate-related shocks have further complicated economic management. Floods, heatwaves, and unpredictable weather have hurt agricultural output and damaged infrastructure. As Pakistan is one of the countries, most vulnerable to climate change, any long-term strategy must include investment in resilience, particularly in the rural areas where livelihoods depend on environmental stability.
Despite these challenges, there have been reasons for cautious optimism. Inflation falling to manageable levels has provided relief, and the exchange rate has remained relatively stable at around Rs278–280 per US dollar. The government has improved coordination with the financial partners and managed imports effectively, preventing the type of crisis seen in previous years. The reform drive, although often politically unpopular, is laying the groundwork for a more rational and sustainable economic system that could, over time, encourage greater investment and growth. International support, including financial aid and programme agreements, has played a stabilising role, helping to maintain liquidity, sustain reforms, and restore confidence in the economic policy.
Looking ahead, forecasts for 2026 suggest gradual recovery. Growth may improve if the agricultural sector rebounds, energy supplies remain reliable, and the private sector confidence strengthens. International partnerships and financial support remain vital, not just for the short-term fiscal needs but also for encouraging deeper structural reforms that modernise the economy. However, risks remain. Global market volatility, geopolitical tensions, and shifts in trade patterns could either support or undermine economic progress, depending on how they evolve.
The key challenge for Pakistan will be to convert stabilisation gains into broad-based and long-lasting prosperity. This requires a reform agenda that focuses on developing human capital, promoting fair competition, improving infrastructure, and supporting innovation. Policymakers must ensure that the economic adjustments do not unfairly burden vulnerable populations. Recovery will require job creation, social protection, and opportunities for young people to thrive. The year has been one of the mixed outcomes, with important strides made in stabilising prices, building confidence, and advancing reforms. Yet growth remains too slow, debt too high, and social pressures too strong to declare a full recovery. The experiences of this year underline the urgency of persistent, well-managed economic transformation. Pakistan is at a stage where bold decisions must be made so that the country continues to move forward towards peace and prosperity.
For the millions of citizens whose lives are shaped by the economy’s ups and downs, hope rests on a future where reforms translate into real opportunities, incomes grow at a fair pace, and the cost of living no longer feels like a daily struggle. As the nation prepares for a new year, its economic story remains one defined by resilience, difficult decisions, and the ambition to build a more secure and prosperous tomorrow. The challenge remains gigantic, but with careful planning, strengthened institutions, and inclusive growth strategies, Pakistan can chart a path towards sustainable development and shared prosperity, ensuring that its young population, vast resources, and strategic potential are harnessed to create a brighter future for all citizens.
