For years, Pakistan has existed in a state of perpetual emergency in terms of economic firefighting. Every crisis – whether it was a balance of payments, inflation, or debt – has been addressed with short-term solutions instead of long-term structural changes. As a result, there are some alarming statistics. Pakistan’s tax-to-GDP ratio has hovered at around 10.6 percent. The country’s public debt has exceeded 70 percent of its GDP (gross domestic product). And despite periods of currency adjustment, Pakistan’s exports have remained stagnant at $32 billion.

These statistics are not just numbers or data; these are examples of how Pakistan has been unable to transition from an economy based upon consumption, rent-seeking, and foreign assistance to one that is based on production, innovation, and export growth. Pakistan’s fiscal and external accounts continue to exist in a vicious cycle of deficit, debt, and dependence on outside assistance. The false sense of security provided today by remittances and international assistance (such as the record-breaking $38.3 billion received by Pakistan in FY25) may provide a level of stability; however, this is fragile and is likely to collapse at some point in the near future.

The many macro-economic weaknesses in Pakistan’s economy arise from deep structural cracks that no amount of short-term policy fiddling will ever fix.

a. Fiscal fragmentation and elite capture: Federal and provincial governments have conflicting incentives. Provincial governments do whatever they want to spend money on, yet collect very little in taxes, whereas the federal government is saddled with unaffordable debt service and subsidy burdens. State-owned enterprises alone lose over PKR 500 billion per year, thus taking away valuable fiscal room. Furthermore, the tax........

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