ince gaining independence, Pakistan has faced many economic challenges that have hindered its growth and development. Many of those challenges, from fiscal imbalances and energy availability/ affordability to political instability and institutional weaknesses, are still haunting the country as it turns 77 next week.

The most pressing issues include the fiscal imbalance and debt burden. The country has struggled with large and growing fiscal deficits, leading to unsustainable public debt levels. Governments have often spent beyond their means, failing to generate enough domestic revenues while engaging in unrestrained spending. As of 2024, Pakistan’s public debt stands at 74.8 percent of GDP, with a budgetary deficit reaching 7.33 percent of GDP in the fiscal year 2023-24. This year is not unique; since 1974, the average debt-to-GDP ratio has been 73 percent, and the average fiscal deficit as a percentage of GDP is 5 percent. The reliance on borrowing to bridge fiscal gaps has led to a cycle of debt that limits economic flexibility, as debt servicing consumes the largest portion of the federal government’s revenue.

Political instability exacerbates these fiscal challenges. Frequent changes in government undermine policy continuity and investor confidence. Pakistan has had 32 prime ministers, including caretakers, in the last 77 years. Excluding caretakers, 20 prime ministers ruled for a total of 48 years, with an average tenure of 2 years and four months. Numerous political transitions have led to inconsistent policy implementation. Such instability not only hampers economic planning but also creates an unpredictable policy environment that discourages long-term investments.

Pakistan’s energy crisis further compounds its economic woes. Initially, there was a power shortfall severely impacting industrial productivity and domestic consumption. The take-or-pay policy under which independent power producers were brought on board resolved the power shortage issue. However, rising capacity payment charges have made the power unaffordable.

Taxation and revenue collection present another significant challenge. Pakistan’s tax-to-GDP ratio is around 9 percent, one of the lowest in the region. The narrow tax base and large informal economy, estimated at 40-45 percent of GDP, limit the government’s ability to generate revenue and invest in critical public services and infrastructure.

High inflation and currency depreciation further strain the economy. Most of the inflation in Pakistan is cost-driven. This cost further accelerates, and the consumer’s purchasing power decelerates every time the rupee loses its value against major currencies. The Pakistani rupee has depreciated by over 286 percent against the US dollar during the last fifty years (from 9.99 a dollar in the 1970s to 286 a dollar now). It has lost its value by 75 percent over the last four years, eroding purchasing power and increasing the cost of imports.

Structural economic issues further compound these challenges. Low productivity and consumption-led growth have not kept pace with the rapidly expanding population (the population is projected to reach 403 million by 2050), leading to increased poverty and unemployment. The economy’s reliance on textiles (about 60 percent of exports) highlights the lack of diversification. Investment in human resource development, technology and innovation has been insufficient, limiting productivity and global competitiveness.

The agricultural sector, which accounts for about 24 percent of the GDP and employs nearly 40 percent of the labour force, faces acute challenges of climate change which are aggravated by outdated farming techniques, limiting productivity. Additionally, the trade deficit remains a persistent issue. The exports have stagnated at around $31 billion while imports now exceed $70 billion.

Security concerns have historically impacted economic activities, though improvements in recent years have raised hope. Their effect on foreign investment and tourism has been significant.

These challenges faced by Pakistan over the past 77 years can be attributed to a combination of historical, political and structural factors. Addressing these challenges requires acknowledging those factors.

The lack of political will for reform is another crucial factor contributing to political instability. Successive governments have often avoided implementing necessary reforms due to fear of upsetting powerful lobbies and privileged elites. This reluctance has led to a failure to increase tax revenues and modernise state-owned enterprises, resulting in persistent fiscal deficits and a growing debt burden. The absence of a coherent economic vision has undermined efforts to establish a stable and growth-oriented economic framework. Consequently, policy decisions have focused on short-term fixes, such as loans from the International Monetary Fund, with Pakistan entering its 25th IMF programme since 1958. Unfortunately, these short-term solutions (IMF’s reform conditions) are often reversed after securing a few loan instalments. This lack of commitment to sustained reform has perpetuated economic instability and hindered long-term development.

Weak institutional frameworks and governance structures contribute to inefficiencies and a lack of accountability in policy implementation. Bureaucratic delays and a complex regulatory environment discourage entrepreneurship and hinder economic growth.

The neglect of key sectors has also contributed to Pakistan’s economic woes. Critical sectors such as education, health, gender mainstreaming and infrastructure have remained chronically underfunded. A significant percentage of children suffer from stunted growth due to inadequate nutrition and healthcare, which has long-term implications for productivity and economic development. Likewise, the lack of gendered policies and low female participation place Pakistan at the bottom of the gender parity index.

Going forward, several promising opportunities offer hope for the future.

The implementation of economic policy and structural reforms under the next IMF programme is a critical step toward addressing fiscal imbalances, enhancing governance, and strengthening institutional frameworks. These reforms, if coupled with robust social protection measures, can alleviate the transition costs and ensure that the benefits of economic restructuring are more equitably distributed, reducing the impact on vulnerable populations.

Adopting climate-smart precision agricultural techniques can significantly boost productivity, enhance resilience to climate change, and ensure food security. The promotion of renewable energy, aiming for 30 percent generation from renewable sources by 2030, can reduce dependence on imported fuels and mitigate energy shortages. Additionally, preparing for mechanisms like carbon trading and the Carbon Border Adjustment Mechanism can help align Pakistan with global climate policies and enhance the competitiveness of its exports. The digital transformation, driven by initiatives like the Digital Pakistan Vision, presents vast opportunities for innovation, entrepreneurship and economic diversification. By harnessing these strategic opportunities and focusing on sustainable growth, Pakistan can chart a path towards a brighter economic future. On this Independence Day, let us resolve to be part of the solution to turn the chronic challenges facing Pakistan’s economy into opportunities.

The writer heads the Sustainable Development Policy Institute. He tweets at @abidsuleri