Pakistan’s politics and economic stagnation cannot be understood merely as a problem of corruption, weak taxation or excessive debt, nor reduced to a simple binary of civilian versus military rule. It is the outcome of a deeper political economy in which control over state resources has become a means of creating and distributing wealth among ruling elites, whether elected or unelected. From the allocation of valuable urban and agricultural land, housing schemes and development rights to tax exemptions, power contracts, procurement decisions and regulatory privileges, the state has repeatedly created rents for those with access while shifting the costs onto those without it. The result is an economic model in which ordinary citizens pay through fuel levies, electricity bills and indirect taxes, while politically connected groups benefit from concessions and assets whose value is often created not through competitive markets, but through decisions made by the state itself.

The scale of this rent creation is most visible in real estate, where state decisions over land and development rights have generated fortunes far beyond anything captured in official accounts. The Bahria Town Karachi case, involving thousands of acres of land, resulted in a Supreme Court-approved settlement of approximately Rs460 billion. In Islamabad, the controversy over the allotment of plots in sectors F-14 and F-15 exposed another dimension of the same system: the allocation of some of the capital’s most valuable public land to powerful officials and institutions at prices far below market value. These are not simply property disputes; they illustrate how control over state assets can become a mechanism for transferring enormous economic value to privileged groups.

On 17 July 2026, the state demonstrated the other side of the equation. Pakistan’s government did what it has repeatedly done whenever global oil prices move against it: it passed the cost directly to those least able to absorb it. Petrol increased by Rs5.44 a litre to Rs316.15. Diesel — the fuel that powers trucks, tractors and the transport network that moves everything from agricultural produce to every sack of flour reaching the market — surged by Rs31.05 to Rs354.35 a litre. The official explanation was familiar: higher international oil prices and increased import costs. That explanation is true, but incomplete.

Once the international cost of crude oil is accounted for, what remains is not an economic inevitability but a political decision: how much of the final price the state chooses to extract from consumers through taxes and levies. For example, the 11 July price notification showed petrol priced at Rs310.71 per litre, of which approximately Rs93.84 represented government taxes and levies — an effective burden of about 43 percent of the tax-exclusive price. Diesel was even more heavily burdened: of its Rs323.30 per litre price, around Rs102.36 went to the state, equivalent to roughly 46 percent. 

The effective burden exceeds both the headline GST rate of 18 percent and the top personal income tax rate of 35 percent. That comparison captures the central unfairness of Pakistan’s tax system: the state can impose and collect taxes instantly from millions of fuel consumers, but repeatedly struggles to collect taxes from politically connected businesses, protected industries and privileged groups that have the power to resist.

The government points out that the standard 18 percent GST is not charged on petroleum products. It does not need to be. The state has already created other mechanisms to extract nearly half the value of the fuel from a highly inflationary taxes on petroleum products. This is not a coincidence. It is by design.

Pakistan’s ruling elite — politically connected industrialists, landed families represented in parliament, bureaucrats who administer exemptions, and the interest groups that lobby for them — has built a system that taxes the powerless through unavoidable transactions while distributing privileges to the powerful through formal and informal arrangements. No one needs to steal when a system is structured to deliver privilege legally, quietly and predictably. Put a number on it, and the scale becomes impossible to ignore.

Pakistan’s politics and economic stagnation cannot be understood merely as a problem of corruption, weak taxation or excessive debt, nor reduced to a simple binary of civilian versus military rule.

Pakistan’s politics and economic stagnation cannot be understood merely as a problem of corruption, weak taxation or excessive debt, nor reduced to a simple binary of civilian versus military rule.

Add together four separate, officially documented flows for FY2024–25 — none based on estimates from foreign lenders or agencies, all drawn from Pakistan’s own fiscal data — and the total comes to approximately Rs6.7 trillion, or around 5.8 percent of GDP, against nominal GDP of Rs114.692 trillion for the year. 

It excludes the Rs1.927 trillion in unrecovered foreign loan receivables owed by state entities — a stock rather than an annual flow. It also excludes the........

© The Friday Times