Comment: Eight reforms Pakistan cannot delay

LAHORE: Pakistan’s allies, Saudi Arabia, China, the US, etc — can lend money, but they cannot lend reform. The real test now is not whether Pakistan can borrow more, but whether it can reform fast enough to grow on its own feet.

Pakistan’s economy stands at a fragile yet critical turning point. The government successfully avoided default through tight fiscal management, engagement with the IMF and temporary support from friendly countries. But the challenge now is to transform this fragile stabilisation into sustainable growth. The country’s foreign reserves remain low, the rupee vulnerable and high interest rates continue to choke private investment. To move forward, Pakistan needs eight decisive reforms with a clear timeline and not slogans or short-term bailouts.

Tax reforms should be a priority. The government must expand the net by integrating traders, retailers and real estate into the formal economy through digital documentation. Every one-percentage-point rise in the tax-to-GDP ratio adds nearly Rs600 billion in annual revenue, enough to reduce the budget deficit by almost half a per cent of GDP. The objective can be achieved in 12-18 months if political resistance is neutralised.

Second priority should be to rationalise expenditure and eliminate untargeted subsidies within the next 12 months. Redirecting energy and commodities subsidies toward targeted cash transfers through BISP or similar programmes could save Rs 400-500 billion annually while protecting vulnerable households. Fiscal discipline here will directly stabilise inflation expectations and improve investor confidence.

Energy sector reform should be the third priority which must be completed in 24 months. Circular debt, now exceeding Rs 2.6 trillion, threatens the entire fiscal framework. The government must accelerate privatisation or public-private partnerships in distribution companies, link tariffs to recovery performance, and incentivise renewable investments. Each 10 per cent improvement in recovery rates could save Rs150 billion per year and ease the budgetary burden on the power sector.

The fifth sector that badly needs reforms trade facilitation and export competitiveness that if pursued sincerely would take 18-30 months. The country must move beyond low-value textiles to engineering goods, processed food, and IT services. A simplified tax rebate system, faster refund mechanisms, and trade corridors through regional integration with Central Asia could lift exports by $5-7 billion annually within three years — adding over 1.5 per cent to GDP growth.

Agriculture modernisation and water efficiency must be achieved within 24 months. Introducing drip irrigation, seed technology partnerships, and farm-to-market infrastructure can raise yields by 20 per cent in major crops. This reform has low fiscal cost but a high social payoff, improving rural incomes and food security while reducing import bills for wheat and edible oil.

Reforms on privatisation and public-private partnerships should be completed within 36 months. Planners do not need to reinvent the wheel but follow global best practices in privatization with the aim of getting rid of all loss making public entities. Transparent privatization and restructuring, with employee safeguards, could save the exchequer over Rs300 billion each year.

Human capital and skills development reforms should be implemented within 3-5 years. Pakistan spends barely 2.0 per cent of GDP on education — half the regional average. Raising it to 4.0 per cent over five years would prepare millions for export-oriented industries and IT services, boosting remittances and productivity.

Governance reforms should be regularly initiated in line with global practices as economic reform without governance reform is like pouring water into a leaking bucket. Predictable policies, efficient courts, and corruption-free bureaucracy are prerequisites for sustainable investment. Establishing fast-track commercial courts, digitizing land records, and depoliticizing the bureaucracy could unlock billions in dormant investment and reduce transaction costs across sectors.

If implemented in sequence, these reforms could raise Pakistan’s growth rate from the current 2-3 per cent to around 4-5 per cent within three years, and possibly beyond 6.0 per cent in five years. The immediate cost will be political: resisting vested interests, enforcing documentation, and cutting populist subsidies. But the long-term dividend is national sovereignty through economic strength.