The Deepening Economic Crisis in Pakistan
Pakistan’s economy is grappling with the consequences of decades of poor decision-making, fiscal mismanagement, and politically driven policies. The persistent pattern of prioritizing political gains over national interest, delaying essential reforms, and neglecting economic value in development planning has led to a severe decline across all sectors. It is not a lack of resources or talent that hinders progress, but rather the failure to make rational and courageous decisions during crises. The result is a stark reality for 240 million Pakistanis, who are bearing the cost of inaction and misguided actions.
State-Owned Enterprises: Financial Black Holes
Nowhere is this crisis more evident than in the country’s state-owned enterprises (SOEs), which have become financial black holes draining public resources. In the fiscal year 2023-24 alone, federal SOEs incurred a combined loss of Rs 851 billion, with cumulative losses reaching Rs 5.75 trillion since 2014. These enterprises include well-known loss-makers such as Pakistan International Airlines (PIA), Pakistan Steel Mills (PSM), Pakistan Railways, and the National Highway Authority (NHA). They no longer function as commercial ventures but instead operate as bloated appendages of the state, plagued by inefficiency, corruption, and overemployment.
PIA, once a symbol of national pride, now carries a debt pile exceeding $2.5 billion. Its staffing structure is outdated, employing over 700 people per aircraft—a figure far beyond international standards. Meanwhile, PSM has not produced a single ton of steel for years, yet continues to absorb public funds while its debts surpass Rs 400 billion. These SOEs are not in a coma—they are on life support, with taxpayers footing the bill.
Lessons from Privatisation: A Path Forward
The model for reform already exists. The partial privatisation of Pakistan Telecommunication Company Limited (PTCL) in the early 2000s demonstrated that privatisation, when executed properly, can yield positive results. PTCL, once employing over 80,000 people, is now leaner, more profitable, and has expanded into broadband, digital television, and IT services with around 18,000 employees. It is time for the government to overcome its political fears and implement a robust privatisation plan for all non-strategic SOEs. These enterprises must either be sold, restructured, or shut down. This will require golden handshake packages, retraining programs, and smooth transitions for laid-off employees. Continuing to carry these loss-making entities is a burden Pakistan can no longer afford.
Bureaucratic Overload and Political Patronage
The story of inefficiency extends beyond state enterprises, permeating the federal and provincial governments. Ministries are often created not out of necessity but as instruments of political patronage. Even after the 18th Amendment devolved many responsibilities to the provinces, the federal government maintains 17 devolved ministries, costing taxpayers Rs 328 billion annually—nearly 0.6% of the national GDP. This is not governance; it is a bloated state apparatus built on political expediency. For example, the Ministry of Narcotics Control was separated from the Interior Ministry not for functional reasons but to hand out an additional cabinet slot. Streamlining efforts, such as merging the Ministry of Defence and the Ministry of Defence Production, could help reduce bureaucracy. A comprehensive, independent audit of all government departments, along with dignified exit options for excess staff, is essential for reform.
Development Spending: Optics Over Economics
Development spending in Pakistan is often dictated by the optics of ribbon-cutting ceremonies rather than economic returns. The Lahore Metro, for instance, consumed over $1 billion. While a sleek, air-conditioned train may look good in photos, it does not power factories or lower inflation. That same amount of money could have been used to build four major hydropower projects, which would have delivered clean, renewable electricity and significantly reduced the country’s power deficit. Yet, these long-gestation, high-impact projects are frequently sacrificed for short-term political gains. Even modest investments in rooftop solar, particularly for public buildings, schools, and urban homes, have been overlooked, despite the private sector embracing the solar revolution.
Energy Sector Mismanagement: A Looming Catastrophe
The energy sector is another critical area of mismanagement, where inefficiencies have evolved into sabotage. Despite Pakistan’s vast solar and hydropower potential, the energy mix remains heavily reliant on imported fossil fuels. This has led to sky-high electricity tariffs, making manufacturing uncompetitive and leaving domestic consumers frustrated. The circular debt in the power sector now approaches Rs 2.7 trillion, and transmission losses due to theft and outdated infrastructure remain as high as 17 to 20%. Worse still, the government continues to sign capacity-based contracts with Independent Power Producers (IPPs), committing to pay billions in “capacity payments” even when no electricity is produced or consumed. In 2024 alone, these payments exceeded Rs 900 billion, representing a clear case of economic self-harm.
Borrowing and Inflation: A Dangerous Cycle
The government’s addiction to borrowing has begun to crowd out the private sector. By 2023, 54% of commercial bank assets were tied up in government securities, leaving little capital available for businesses. Startups, SMEs, and manufacturers—key drivers of employment and innovation—are starved of credit. To compound the issue, the government has resorted to printing money to finance deficits, with open market operations ballooning to Rs 9.4 trillion. This artificial liquidity has resulted in inflation soaring past 29%, the rupee losing over half its value since 2021, and the purchasing power of the average household declining by an estimated 33%. The middle class has been decimated, and economic insecurity has become the norm.
Structural Rot: Property Rights and Judicial Delays
Beyond mismanagement and inefficiency, Pakistan’s economy suffers from structural rot, particularly in property rights and judicial delays. Over 2.2 million court cases remain pending, with a significant proportion involving land disputes. On average, these cases take four to ten years to resolve, during which valuable land lies idle, investments stall, and productivity is frozen. The economic cost of these delays is estimated at 1.65% of GDP annually. This lost wealth should be mobilising rural assets, attracting investment, and powering construction, but instead, it is trapped in litigation.
A Call for Stewardship and Courage
Pakistan’s economic problems are not accidental; they are the result of deliberate political choices made to appease allies, avoid difficult reforms, and win elections. The price of these decisions is now impossible to ignore: Rs 5.75 trillion in SOE losses, a battered currency, an overburdened middle class, stalled investment, and a state that is growing in size but shrinking in capacity. If there is any hope of economic recovery, the political leadership must shift from the politics of survival to the politics of stewardship. This means confronting vested interests, shedding patronage politics, prioritising development based on economic value, ending reliance on unsustainable borrowing, and fixing the energy and land governance frameworks at their core.
These are not luxuries for another day; they are lifelines for today. Until such a transformation occurs, Pakistan risks remaining caught in an endless cycle: a country rich in potential but starved of progress, run by leaders who confuse motion with movement and optics with outcomes. The hour is late, but not beyond redemption. What is needed is not just reform, but the courage to pursue it.
