GROWTH MODEL
Pakistan has entered 23 IMF programmes, with the recently signed Extended Fund Facility (EFF) programme securing another $7 billion in loans to avoid default. Yet poverty persists, productivity stagnates, and the economy remains trapped in a loop of dependence and dysfunction. Every few years, we find ourselves back at the negotiation table, seeking a bailout while our real economic engine continues to sputter.
Three facts define our development story. First, our growth is cyclical and shallow, averaging below 3.0 per cent in recent years. Second, our external financing needs are routinely met through emergency bailouts rather than sustainable export earnings. And third, despite large allocations for poverty alleviation, productivity -- the core engine of development -- remains absent from our economic vocabulary.
Why does this matter? Because no country in history has ever achieved sustained growth without improving productivity. It’s not foreign aid, nor population size, nor even industrial scale that determines prosperity. It’s the ability to produce more value with fewer inputs. Paul Krugman puts it best: “Productivity isn’t everything, but in the long run, it is almost everything.”
In Pakistan, this long run has never arrived. We obsess over managing crises -- exchange rate stability, current account balance, fiscal gaps -- but rarely discuss what makes an economy grow from within. Instead of building competitive firms and skilled workers, we have preferred shortcuts: subsidies, cash handouts, donor-funded programmes and inflated public sector employment.
Global examples tell us otherwise. Look at South Korea. In the 1960s, it was poorer than Pakistan in per capita terms, with Pakistan’s per capita income being around $82 and South Korea’s per capita income being $79. Today, it’s a global innovation powerhouse. The transformation wasn’t accidental. It was engineered through relentless investment in human capital, technology adoption, export-oriented industrialisation and a national obsession with productivity.
Even within Asia, Bangladesh and Vietnam have outpaced Pakistan by focusing on productivity-led export growth. Vietnam’s exports have grown more than 17 times since 2000; Pakistan’s just four. The difference? Vietnam moved its labour force from low-productivity agriculture into high-value manufacturing. Bangladesh invested in skills, supply chains and policy consistency. We did neither.
Our development model has drifted far from these fundamentals. Instead of focusing on how to make our people more productive, we debate how much to spend on subsidies and social protection. Instead of enabling firms to compete globally, we trap them in a web of unpredictable taxes, power tariffs and regulatory harassment.
This is not to say that social protection is unnecessary. But when more than Rs750 billion is allocated annually to cash transfers without a meaningful path to jobs or economic inclusion, we are institutionalising poverty rather than eliminating it.
For too long, Pakistan’s development debate has revolved around redistribution without production. We argue over who should get how much of a shrinking pie, rather than asking how to grow the pie. That is why even our best intentions result in poor outcomes
Productivity must return to the centre of our growth strategy. That requires a different mindset and a new policy architecture. Here are five shifts Pakistan must make urgently and decisively.
First, reorient education toward skills and employability. Pakistan’s current education system produces degrees, not competencies. We need a system where vocational training, digital literacy and practical problem-solving are emphasised over rote learning. Every rupee spent on education should be measured against the productivity gains it generates.
Second, make ease of doing business a national obsession. We cannot have 40-plus taxes, multiple overlapping regulators, and constant policy reversals and expect firms to grow. Regulatory simplification, flat-rate taxation and one-window facilitation centres should not be pilot projects; they must become the rule.
Third, formally integrate the informal economy through localised interventions. Pakistan’s informal sector employs over 70 per cent of the workforce but remains disconnected from value chains. Initiatives like Village Economic Zones (VEZs) can convert underutilised rural assets into hubs of production and commerce. These are not welfare centres. They are productivity incubators -- designed to bring micro-entrepreneurs, artisans and smallholders into the mainstream economy.
Fourth, invest in value-added exports, not just export incentives. Pakistan’s exports remain stuck in low-value textiles and commodities. We must move up the value chain — in garments, electronics, food processing and IT services. That means investing in product design, branding, logistics and compliance, not just subsidising raw material.
Fifth, put productivity metrics at the heart of budget making. Every development project, subsidy, or programme should be evaluated based on its potential to improve productivity. A ‘Productivity Impact Statement’ should be mandatory in all Public Sector Development Programmes (PSDP) proposals, much like environmental impact assessments. Without this lens, we will keep building roads to nowhere.
Of course, none of this is possible without political will. Productivity doesn’t offer quick wins or vote banks. It demands hard reforms, long-term thinking and policy patience. But if we want to break the cycle of dependence and stagnation, we have no other choice.
Platforms like the Pakistan Institute of Development Economics (PIDE) are already laying the groundwork. Through independent research, policy innovation, and models like VEZs, institutions like PIDE can help develop a productivity-centred development framework for the country. But these ideas must be mainstreamed, not marginalised.
For too long, Pakistan’s development debate has revolved around redistribution without production. We argue over who should get how much of a shrinking pie, rather than asking how to grow the pie. That is why even our best intentions result in poor outcomes.
It’s time to stop chasing aid and start building capability. Productivity is not a technical term; it is a political choice. And if we don’t make that choice now, the next 23 IMF programmes will look no different from the last.
The writer is an associate professor at the Pakistan Institute of Development Economics (PIDE).