Ending policy stagnation

January 19, 2025

Pakistan must pivot from short-term pragmatism to long-term structural reform

Ending policy stagnation


D

espite recent signs of relief, the national economy remains precariously perched on the edge of deep crisis. The current GDP growth projection of 3.5 percent for 2024, after years of stagnation, has been celebrated as an achievement. Yet, this recovery lacks the substance of deliberate, well-crafted policy reforms. Instead, it appears to be the economy’s natural cyclical expansion after a prolonged recession.

With inflation still high and given the fiscal deficit, relying on short-termism and reactive measures risks squandering an opportunity to address systemic challenges. The much-touted Uraan Programme, despite its promise, exemplifies the disconnect between a grand vision and actionable strategies.

A closer sector-wise examination reveals glaring gaps that undermine the programme’s potential. The digital sector, hailed as a driver of future growth, has struggled with critical bottlenecks. Freelancing, a significant source of income for Pakistan’s youth, remains hamstrung by frequent internet disruptions and policy inconsistencies.

Pakistan’s lack of robust private data protection laws exposes digital businesses and freelancers to global compliance risks, especially when engaging with international clients. Furthermore, restrictive views on workforce dynamics hinder the potential of remote and hybrid employment models that could otherwise attract foreign investment.

The export sector, another cornerstone of the Uraan Programme, faces challenges of its own. While the programme ambitiously targets $60 billion in exports by 2028, the ground reality is far less promising. Compliance with GSP+ requirements has become increasingly burdensome as inconsistent labour and environmental standards threaten the country’s preferential trade status with the European Union.

Overdependence on low-value textile exports, coupled with the absence of innovation and diversification, continues to limit Pakistan’s competitiveness in global markets. Short-term adjustments like currency devaluation may temporarily boost export revenues, but they fail to address these structural inefficiencies.

The energy sector epitomises Pakistan’s deep malaise of mismanagement and inefficiency. Circular debt, now exceeding Rs 2.8 trillion, continues to weigh down the sector. Policy measures remain reactive at best. Tariff adjustments, often politically motivated, do little to resolve underlying issues in generation, transmission and distribution.

Renewable energy, which could mitigate costs and diversify supply, receives only lukewarm support. In the absence of a coherent framework, Pakistan’s energy woes remain a perennial obstacle to industrial and economic growth.

Climate and environmental challenges, particularly the smog in urban centres like Lahore, present another crisis demanding immediate attention. The Air Quality Index levels in the region have consistently ranked among the worst globally, with Lahore often topping the charts for hazardous air.

Yet, government action remains limited to ad hoc measures, such as temporary closures of schools or industries, rather than systemic interventions like vehicular emission controls or promoting cleaner industrial processes. The consequences are dire, not only for public health but also for agricultural productivity and urban sustainability.

In the digital sector, a liberal approach toward freelancers and easing of restrictions will allow the youth to integrate more effectively into the global digital economy. Robust private data protection legislation will enhance trust and compliance. 

To navigate these challenges and chart a sustainable path forward, Pakistan must pivot from short-term pragmatism to long-term structural reform. Each sector requires focused, actionable strategies that go beyond surface-level adjustments.

In the digital sector, a liberal approach toward freelancers and easing of restrictions will allow the youth to integrate more effectively into the global digital economy. Robust private data protection legislation, modeled on international standards such as the GDPR, will enhance trust and compliance, making Pakistan a more attractive destination for outsourcing and IT investment.

Uninterrupted internet access must be treated as a national priority. The frequent disruptions not only harm businesses but also erode confidence in Pakistan’s digital infrastructure.

The export sector demands a reimagined approach to value creation. Compliance with GSP+ requirements must be prioritised through stricter enforcement of labour and environmental standards. Beyond textiles, Pakistan must explore high-value export avenues such as technology products, agro-processing and pharmaceuticals.

Tax incentives for exporters who invest in innovation and value addition could incentivise the shift toward higher-margin products. At the same time, trade agreements need to be revisited to align with changing global dynamics, ensuring sustained market access.

Energy sector reform, while complex, is indispensable for economic stability. Privatisation of loss-making distribution companies, coupled with a transparent regulatory framework, can reduce inefficiencies. Renewable energy adoption must be fast-tracked with clear incentives for solar, wind and hydropower projects.

Investment in energy storage technologies could complement these renewables, ensuring reliability. Crucially, tariff structures must reflect true costs while introducing targeted subsidies for vulnerable populations to ensure affordability.

Environmental issues, particularly urban smog, require an urgent and multi-faceted response. A comprehensive national policy to address air pollution is long overdue. Measures such as stricter vehicular emission standards, subsidies for electric vehicles and a phased transition to renewable energy in industrial zones could significantly reduce pollution levels.

Urban green spaces must be expanded, and stringent penalties for stubble burning and industrial emissions need enforcement. Climate resilience must also be embedded into agricultural and urban planning, aligning with the broad goal of sustainability.

The Uraan programme has the right vision, but vision alone is insufficient. Implementation could end up being its Achilles’ heel. So could the reliance on cyclical economic relief rather than strategic intervention. The real test lies not in announcing targets but in addressing the systemic dysfunctions that have historically thwarted progress.

Policymakers must embrace the hard choices that will determine whether this moment of relief becomes the foundation for sustainable growth or another missed opportunity. The time for bold, transformative action is now. Anything less would be a disservice to the immense potential of the economy.


The writer, an associate research fellow at the Sustainable Development Policy Institute, is heading its Centre for Private Sector Engagement. He can be reached at ahad@sdpi.org. The article doesn’t necessarily represent the views of the organisation.

Ending policy stagnation