Winds of change Pakistan on move: Navigating challenges – Pakistan Observer

Pakistan is entering a decisive phase: stabilize the present, redesign the future. Signs of an economic uptick are emerging after a turbulent stretch, but sustaining a recovery will demand steady reforms, cleaner governance and a strategy that links domestic strengths to global demand—especially through a rapid shift toward cleaner, cheaper energy.

Stability with warning lights

Output is inching up, with growth projected at roughly 2.7% in FY2025 and the possibility of touching around 3% thereafter. Inflation has begun to cool from recent highs, and foreign exchange buffers have improved compared with last year’s trough. Yet the floor remains shaky. Fiscal gaps persist, public debt is heavy and a narrow, distortion-ridden tax base constrains the state’s ability to invest in people and infrastructure.

External exposure is equally stark. Pakistan’s import bill leans heavily on fuel and intermediate goods, while exports are still concentrated in low-value textiles. That mix makes the economy vulnerable to commodity price spikes, currency swings and supply-chain disruptions—and leaves little room to upgrade into higher-value products.

The weight of debt

Debt service now absorbs an outsized share of public resources. In the 2025–26 fiscal year, about PKR 8.2 trillion—more than 46% of the federal budget—has been earmarked to meet domestic and external obligations. In the first half of FY2023–24, interest payments alone made up 65.3% of current expenditure. That “crowding out” leaves fewer funds for classrooms, clinics, water systems and transport—investments that build productivity and resilience.

High indebtedness also magnifies exposure to global rate hikes and exchange-rate swings. When deficits are financed through short-term borrowing, currency pressure can intensify, creating a feedback loop of rising costs and weaker confidence. Repayments to multilaterals, commercial creditors and bondholders—roughly USD 11 billion due—underscore the urgency of credible fiscal repair. Without it, serial emergency programs remain a recurring stopgap, often with tough conditions and limited room to set long-term priorities.

From patchwork fixes to structural change

Stability will not come from austerity alone. It requires a redesign of how the state collects, spends and catalyzes private investment—paired with a clear plan to reduce energy imports and climb the value chain. Core steps include:

• Widening the tax base and closing loopholes so the burden is shared more fairly and revenue becomes more predictable.
• Cutting wasteful spending while protecting funds for health, education, climate adaptation and connectivity.
• Rehabilitating or divesting loss-making state-owned enterprises to curb fiscal drain and improve service quality.
• Reorienting export policy toward higher-value manufacturing and services, supported by standards, skills and technology adoption.
• Anchoring macro reforms in social protection to prevent setbacks in poverty reduction and human development.

Energy transition: the fastest lever

Nothing will bend the import bill—and strengthen resilience—faster than clean power. Pakistan’s sun-rich plains, strong wind corridors and substantial hydro potential provide a clear path to cheaper electricity, lower emissions and industrial competitiveness.

Priorities that can move quickly:

• Accelerate utility-scale solar and wind, paired with grid upgrades and storage to handle variability and reduce reliance on imported fuels.
• Enable rooftop and community solar through stable net metering, simple permitting and local financing—especially for households, SMEs and public buildings.
• Solarize agriculture with efficient pumps and drip irrigation to cut diesel use and water waste, backed by concessional credit.
• Boost industrial energy efficiency and cogeneration in textiles, cement and food processing to lower costs and expand export competitiveness.
• Modernize transmission to evacuate renewable power from resource-rich regions and reduce losses across the system.

These shifts do more than clean the grid. They curb exposure to volatile fuel prices, stabilize the rupee by shrinking imports, create green jobs and position Pakistan to attract climate-aligned financing. With the right policies—transparent auctions, predictable tariffs, and reliable contracts—private investment can carry much of the load.

Digital momentum and green industry

A young, tech-forward population is already building new services and exportable capabilities. Pairing that dynamism with clean, reliable electricity can spark a virtuous cycle: lower power costs for data-driven businesses, better logistics through digital platforms, and a pipeline of green-tech startups from mobility to agri-solutions.

To lock in gains, Pakistan can:

• Integrate vocational training with industry needs in renewables, grid operations, fabrication and maintenance.
• Support local manufacturing of solar components, wind towers and energy storage enclosures through time-bound incentives and quality standards.
• Scale electric mobility for buses and two- and three-wheelers, where fuel savings and air-quality benefits are greatest.
• Leverage public procurement to seed demand for efficient appliances, green building materials and circular-economy solutions.

A credible path forward

Pakistan’s recovery is possible—but only if macro fixes and structural change advance together. Fiscal discipline must go hand in hand with investment in people and climate resilience. Export policy should prioritize value addition, not just volume. And the energy system must pivot decisively toward domestic, renewable resources.

This is not merely an economic agenda; it is a national resilience plan. By embracing clean power, smarter industry and inclusive governance, Pakistan can trade the cycle of stabilization and slippage for a more durable, self-reinforcing growth model—one that lowers costs, protects communities and restores confidence at home and abroad.