Charting a Bold Economic Path: Transforming Pakistan with Strategic Reforms and Remittance Strength
By AAH Soomro
KARACHI:
Let’s start by examining the evolving economic landscape through key indicators.
Positive Trends: Oil Prices, Remittances, and Investor Sentiment
Over the past couple of weeks, Pakistan’s financial narrative has taken a hopeful turn. The global trade disruptions have unexpectedly worked in our favor, primarily by bringing down oil prices. While the everyday consumer hasn’t seen immediate benefits—since much of the savings have been diverted toward subsidizing energy and developing infrastructure in Balochistan (a necessary investment)—investor optimism has surged.
This renewed confidence is bolstered by an upgraded credit outlook and a historic surge in remittance inflows. With $4.1 billion in monthly remittances, overseas Pakistanis have become an essential stabilizing force in our macroeconomic framework.
Bridging the Dollar Gap with Remittances
Since 1998, Pakistan’s competitiveness in global markets has eroded. Our export-to-GDP ratio has fallen from 16% (around $10 billion) to 11% (about $38 billion), while remittances have climbed from 1.9% ($1 billion) to roughly 10% ($36 billion). In effect, our diaspora has compensated for the nation’s structural shortcomings—an exceptional effort that deserves recognition.
However, this reliance has led to a dangerous inertia in policymaking. Instead of addressing underlying issues, we’ve leaned heavily on a formula of slow growth, talent migration, and missed opportunities. Now, with remittances still rising, it’s time to shift gears—transforming this cushion into long-term resilience.
A Unique $20 Billion Window for Transformation
If oil prices hover between $50 and $60 per barrel in the next four years, Pakistan could save around $6–8 billion. Combine this with an unexpected surge in FY26 remittances—potentially $37 billion instead of the forecasted $34 billion—and the country may have an opportunity pool of nearly $18–20 billion. To turn this windfall into a catalyst for change, several steps must be taken:
1. Reallocate Oil Windfall Smartly
Petrol in Pakistan is already cheaper than in many regional peers: Bangladesh ($1.03/litre), Philippines ($1.15), India ($1.21), Sri Lanka ($1.28), and Kenya ($1.50), while Pakistan sits at $0.95. There’s no urgency to slash prices further. Instead, savings from oil imports should be used to fund initiatives that boost productivity rather than subsidizing consumption. A well-designed awareness campaign can help citizens appreciate the bigger picture.
2. Maintain Interest Rate Advantage Carefully
Bringing interest rates below 10% could reignite an unsustainable import boom. In 2015–2018, this led to an overheated economy when U.S. rates were near zero. Now, with U.S. 10-year bonds yielding 4.5%, Pakistan must keep a 7–8% gap, meaning local rates shouldn’t fall below 11–12%. This maintains demand without risking macroeconomic instability.
3. Disciplined Import Management
Only essential imports—raw materials, machinery, and inputs for export industries—should be permitted freely. Final goods, particularly luxury items, should be discouraged. However, selectively taxing luxury imports like high-end cars can generate valuable revenue, which must be directed toward public infrastructure and social welfare, especially for lower- and middle-income groups.
Large-scale investments in downstream industries—like refineries, semiconductor production, textile complexes, and smelters—are also critical. These sectors can replace imported finished goods, generate employment, and improve the trade balance.
4. Lower External Debt Using Surplus Funds
If Pakistan maintains a modest growth rate of 4% annually, the external debt-to-GDP ratio could fall from 37% ($130 billion of $350 billion GDP) to 26% ($110 billion of $410 billion GDP) by FY29. The $20 billion cushion should be prioritized for debt reduction, improving our credit rating and enhancing strategic autonomy in global negotiations.
5. Avoid Short-Term Popularity Traps Before Elections
Temptations to accelerate GDP growth beyond 4% in the run-up to elections must be resisted. A stable 3.5–4% pace ensures a smoother transition into a new growth cycle, focused on IT services, mineral exports, agricultural modernization, and tax system upgrades.
Revamping state-run loss-makers like Pakistan International Airlines and various electric supply companies is vital. At the same time, strategic projects like the ML-1 rail network and water storage initiatives (e.g., Dasu and Bhasha Dams) must move forward to support long-term agricultural and industrial growth.
Population management should also be integrated into welfare programs. For example, limiting Benazir Income Support Programme eligibility to families with two children could encourage sustainable demographic growth.
6. Reward Productive Investment, Penalize Speculation
High returns of 15–25% should be reserved for initiatives that create exports or replace imports. Speculative real estate investments, which contribute little to economic output, should face higher taxes and capped returns. This would shift capital into sectors that drive real growth and create opportunities for new entrepreneurs focused on value creation instead of rent-seeking.
Adapting to a Fragmented Global Economy
As global politics and economics become increasingly polarized, smaller nations like Pakistan will face pressure to align with dominant powers. To retain autonomy, Pakistan must strengthen its foreign reserves, reduce reliance on short-term external borrowing, and invest in sustainable economic drivers.
The Special Investment Facilitation Council (SIFC) must lead the charge in aligning stakeholders, speeding up reforms, and unlocking investment potential across sectors such as education, skills training, manufacturing, and technology. Inaction at this critical juncture could turn today’s brain drain into a long-term disaster. But with bold moves, this era of strong remittance flows could trigger a new chapter—one of brain gain and economic sovereignty.
FAQs for Pakistani Readers
1. What are the biggest factors supporting Pakistan’s economy today?
Lower global oil prices, increasing remittances, and improved investor sentiment are currently the key pillars stabilizing Pakistan’s economy.
2. Why shouldn’t fuel prices be reduced further for the public?
Pakistan already has one of the lowest petrol prices in the region. It’s wiser to use savings from oil imports for development and economic restructuring instead of temporary relief.
3. How can Pakistan reduce its foreign debt burden?
By channeling the savings from oil prices and remittance surpluses into debt repayment, Pakistan can lower its external debt-to-GDP ratio significantly by FY29.
4. What kind of investments should Pakistan focus on?
Capital should be directed toward industries that increase exports or reduce imports—such as refining, manufacturing, agriculture, and IT—rather than into speculative sectors like real estate.
5. What role do overseas Pakistanis play in the economy?
Overseas workers contribute around $4.1 billion monthly in remittances, which have become essential in financing the trade gap and supporting the currency.
