LAHORE: Pakistan stands halfway on its journey towards sustained economic growth, yet the road ahead is blocked by contradictions in policy and weak political will.
Sustained growth cannot be achieved without an open economy, foreign direct investment (FDI) inflows, a vibrant capital market and, above all, political stability. On paper, Pakistan claims to operate under free market principles. In reality, the culture of statutory regulatory orders (SROs) continues to distort these principles, tilting the playing field in favour of powerful lobbies and foreign investors while leaving small businesses to survive in the brutal competition of the open market without regulatory cover.
The finance minister has repeatedly signalled his commitment to dismantle the SRO regime, but political compulsions force him to proceed at a snail’s pace. Unless Pakistan abandons this culture of selective concessions, the macroeconomic improvements being advertised will never translate into real and broad-based growth.
If Pakistan is serious about breaking free from its half-built growth model, it must make hard choices: abolish the SRO culture, remove distortive duty protections, link investment incentives with export obligations, and rebuild credibility with both domestic and foreign investors through political and policy consistency. Without this course correction, Pakistan risks locking itself in a cycle where growth is promised but never delivered — a journey half-travelled that leads nowhere.
Take the example of raw material protection. It is not necessary for Pakistan to produce raw materials domestically if they are costlier than global market alternatives. Yet successive governments have protected industries such as polyester fibre, shielding a few thousand jobs while sacrificing millions. The result: Pakistan was pushed out of the global blended yarn and fabric market, which accounts for nearly 80 per cent of the world’s textile trade. By protecting a small raw material industry, Pakistan lost the chance to create 15 million new jobs in the textile sector, its natural competitive strength. The polyester fibre industry is now competitive but Pakistan missed the train when its competitors like Bangladesh and Vietnam entrenched themselves in the global market.
This distortion is not new. In the late 1990s, Pakistan spoiled foreign investors by offering duty protection to small raw material units. Even though their production capacities were insufficient to meet local needs, the protection allowed them to keep rates just below the landed cost of duty-paid imports. That set a dangerous precedent: no foreign investor was willing to bring in capital unless guaranteed extraordinary protection or assured high returns. Independent power producers (IPPs) are a stark example, enjoying guaranteed profits at the cost of Pakistani consumers and taxpayers.
Pakistan’s investment policy adds another layer of weakness. It places no binding requirement on foreign investors to export part of their production. This has encouraged companies to offload their obsolete and low-capacity plants, long abandoned elsewhere, into Pakistan. Instead of becoming an export-oriented manufacturing hub, Pakistan has become a dumping ground for second-grade investment.
What is clear is that investment will only come with political stability, which remains shaky despite the same faces in power since mid-2021. The absence of stability deters serious investors, while short-term opportunists exploit concessions and exit without adding lasting value to the economy.