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Title: Breaking the Cycle
Writer: Editorial
Published in: Dawn
Date of publication: 24 October 2026
Stable but Stuck: Why Pakistan Keeps Returning to the Same Economic Crisis
Pakistan’s economy has a familiar rhythm. Growth picks up, imports surge, dollars run short, the rupee comes under pressure and the government has to slam on the brakes, often with help from the International Monetary Fund. A few years of tight belts follow. Then the economy is allowed to grow again, and the whole sequence repeats. Economists call this a boom-bust cycle, and Pakistan has been through it many times. The latest assessment from the World Bank shows both how far the country could go if it escaped this cycle and why the current calm, welcome as it is, has not yet broken it.
1. What the World Bank Says Is Possible
In its latest Pakistan Development Update, the World Bank sets out an ambitious picture. If Pakistan’s policies and institutions matched those of an average middle-income country, annual growth could rise to 6.2 to 6.9 per cent. At that pace, Pakistan could reach Vietnam’s current income level, and average incomes could triple by 2050.
These numbers are best read as a target for reform, not a forecast. They describe what is achievable if the country changes how it governs its economy, not what will happen if it carries on as it is.
2. Where Pakistan Stands Today
The recent figures look respectable on paper:
Real GDP growth, the increase in output after adjusting for inflation, rose to 3.65 per cent in FY26.
The government ran a primary surplus of 2.9 per cent of GDP. A primary surplus means that, leaving aside interest payments on old debt, the government collected more than it spent. It is a key sign of fiscal discipline.
The problem lies in what ordinary people feel. Income per person is growing by only about 1.6 per cent a year, because the population is also growing quickly. In plain terms, the economy’s accounts have been put in better order without making most people noticeably better off.
3. Stability Bought by Holding the Economy Down
International lenders and credit rating agencies have praised Pakistan’s return to macroeconomic stability: lower inflation, steadier finances and a more manageable external position. That praise is deserved, but it hides an uncomfortable truth. Much of this stability has come from holding the economy down.
Three tools did most of the work:
High interest rates, which made borrowing expensive and cooled spending.
Fiscal tightening, meaning cuts in spending and higher taxes on those already paying.
Costly energy, which squeezed households and businesses alike.
Together, these reduced demand across the economy. People and firms bought less, including fewer imported goods, and that eased the pressure on Pakistan’s scarce foreign exchange. Stability achieved this way is not the same as a solid foundation for fast growth.
4. Dollars That Do Not Build Capacity
On the external side, two other supports have kept things steady. Workers’ remittances, the money sent home by Pakistanis working abroad, strengthened the current account, which records a country’s trade and income flows with the rest of the world, and helped rebuild foreign exchange reserves. Continued external borrowing also bought time.
Neither builds the economy’s productive strength. Borrowing simply pushes repayment into the future. Remittances bring in dollars without adding to what Pakistan itself produces. And cutting imports balances the books without making Pakistani exports any more competitive. The external account looks better because the economy is doing less, not because it is producing and selling more.
5. How the Cycle Restarts
This is where the danger lies. The current stability depends on two things continuing: steady inflows of money from abroad, and the government keeping a tight grip on demand.
The moment Pakistan tries to grow faster, imports rise sharply. Factories need machinery, fuel and industrial inputs, and households with more money buy more consumer goods, much of them imported. If exports and productivity do not rise at the same speed, the familiar chain follows: the current account deficit widens, reserves fall, and policymakers are forced to tighten again. The boom turns into another bust.
6. What Holds Growth Back
Breaking the cycle requires changing what the economy produces and sells, not just how fast it is allowed to grow. Several long-standing obstacles stand in the way:
Unreliable and expensive energy, which raises costs for every industry.
A narrow tax base, which puts the burden on a small group of compliant taxpayers.
Cumbersome regulation that slows down business.
Weak competition, which protects inefficient firms.
A poorly skilled workforce.
Frequent policy changes that discourage long-term investment.
None of these is new, and none can be fixed by short-term financial management.
7. Using the Breathing Space
The reforms needed are well known. On tax, the aim should be to bring under-taxed sectors into the net rather than squeezing those who already pay. On energy, the goal should be to cut the system’s total cost instead of shifting it between consumers and the budget. On exports, Pakistan needs a workable strategy, not just a list of incentives. Alongside these, sustained investment in education, health, infrastructure and technology and the building of trustworthy institutions are essential.
The central point is simple. Macroeconomic stability cannot carry the economy much further without higher productivity, the ability to produce more value from the same workers, capital and resources. The current calm is a breathing space, not a solution. If it is used to raise productivity, expand exports and complete lasting energy and tax reforms, the World Bank’s figures could become reality. If it is wasted, the next attempt to grow could bring back the very crisis Pakistan has just escaped.
Exam Essentials
1. Key Facts and Figures
World Bank Pakistan Development Update: reforms could raise growth to 6.2 to 6.9 per cent a year
Potential to reach Vietnam’s current income level and triple incomes by 2050
Real GDP growth: 3.65 per cent in FY26
Primary surplus: 2.9 per cent of GDP
Per capita income growth: about 1.6 per cent a year
Main stabilising tools: high interest rates, fiscal tightening, costly energy
External supports: remittances and external borrowing
2. Key Terms
Boom-bust cycle: repeated swings between rapid growth and sharp economic contraction
Macroeconomic stability: low inflation, manageable debt and a sustainable external position
Primary surplus: government revenue exceeding spending, excluding interest payments
Current account: record of a country’s trade and income transactions with the world
Foreign exchange reserves: foreign currency held by the central bank
Remittances: money sent home by citizens working abroad
Productivity: output produced per unit of labour and capital
Tax base: the range of people and activities subject to tax
Fiscal tightening: reducing government spending or raising taxes to control deficits
3. Related Subjects
Pakistan Economy: growth, stabilisation, IMF programmes
Economics: macroeconomic policy, balance of payments, productivity
Public Finance: taxation, fiscal deficit, debt
Governance: institutional reform, policy consistency
Development Studies: comparison with Vietnam and other emerging economies
4. Useful Arguments
Stability achieved by suppressing demand is not sustainable growth.
Pakistan’s growth repeatedly ends in balance of payments crises because exports lag imports.
Remittances and borrowing ease pressure but do not build productive capacity.
Broadening the tax base is fairer and more effective than raising rates on existing payers.
Energy reform must cut total costs, not shift them around.
Policy consistency is essential for long-term investment and growth.
5. Probable Questions
“Pakistan’s economy grows only to collapse.” Analyse the causes of its recurring boom-bust cycle and suggest remedies.
Distinguish between macroeconomic stability and sustainable growth with reference to Pakistan’s recent economic performance.
What structural reforms are needed for Pakistan to achieve export-led growth?
6. One Quotable Line
“An economy kept calm by being kept small is stable only until it tries to grow.”
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