Pakistan in dire need of reforms

The economic situation in Pakistan remains complex, with fluctuating growth rates, high prices of commodities, and economic disparities shaping the financial framework.

The persistent fiscal deficit, compounded by heavy reliance on internal and external debts, has placed immense pressure on the economy. A weakened rupee and the rising cost of imports have further strained the country’s economic stability.

Structural reforms for taxation and industrial development remain critical for sustainable economic growth.

As the fifth world’s most populous country, Pakistan’s economic progress has fallen behind even countries like Singapore, Estonia, and Georgia, which consistently rank higher in global business readiness assessments. The regulatory framework in these countries fosters ease of doing business, while Pakistan continues to struggle with bureaucratic inefficiencies, high cost of doing business, and policy inconsistencies.

The governance system in Pakistan continues to face shortcomings, with bureaucratic red tapes and inconsistent policy implementations slowing down progress. Rule of law remains a significant concern, as recurrent political instability disrupts long-term economic planning.

The law-and-order situation, although slightly improved in recent years, still struggles with sporadic insurgencies and security threats, particularly in the border regions.

The judiciary faces issues of huge backlog and delayed justice, which affect both citizens and businesses. The taxation policies have been a major challenge, with a distorted and punctured tax base, high tax rates and overwhelming reliance on indirect taxes.

In contrast, the government in Estonia has successfully implemented transparent tax policies and digitized financial transactions, leading to better compliance and higher revenue generation. The same model could be adapted in Pakistan to streamline tax collection and improve financial governance.

The Business Ready 2024 report released by the World Bank Group highlights Pakistan’s position in the global economic framework, evaluating its business climate based on three key pillars: Regulatory Framework, Public Services, and Operational Efficiency.

The overall ranking of Pakistan remains relatively low, reflecting structural deficiencies in the business environment. The country’s Regulatory Framework scored 59.10, indicating moderate compliance with global standards, with significant room for improvement.

The Public Services pillar, comprising availability of infrastructure, digital services, and bureaucratic efficiency, scored 44.97, points to substantial inefficiencies. Operational Efficiency, which assesses ease of doing business, performed slightly better at 65.90 but still fell short of international benchmarks.

Compared with higher-ranked countries such as Portugal and New Zealand the situation reveals substantial gaps in regulatory efficiency, transparency, and service provision. Consistent policies of these nations have fostered investor confidence, allowing businesses to thrive.

The most critical gaps in Pakistan’s business framework include cumbersome regulatory procedures, an underdeveloped financial sector, and inefficiencies in dispute resolution mechanisms. Business entry and insolvency processes are major hurdles, as reflected in the country’s poor ranking in these areas.

The taxation system continues to be a formidable barrier, with complex tax codes and low compliance rates deterring investment. There is an urgent need for simplification of tax procedures, similar to successful models of Singapore and Hungary.

The infrastructure limitations, including unreliable electricity supply and inadequate transportation networks, further impede business operations. Public services gap is also a prime issue, as bureaucratic ineptitudes discourage entrepreneurship and foreign investment.

Limited digital adoption in government services has placed Pakistan at a disadvantage compared to countries like Estonia, where e-governance has dramatically reduced delays and corruption.

The long-term economic stability of Pakistan requires a comprehensive reform strategy focused on governance, infrastructure, taxation, and business facilitation. Streamlining regulatory processes by implementing digital solutions and reducing bureaucratic red tape will enhance business entry and operational efficiency.

Strengthening financial institutions and improving access to credit, particularly for small and medium enterprises (SMEs), will foster economic growth and job creation.

Judicial reforms aimed at expediting commercial dispute resolution will boost investor’s confidence and business predictability. Improving tax compliance through a simplified tax structure, low tax rates on broadest possible tax base, and judicious balance between direct and indirect taxation will enhance revenue generation.

Investments in infrastructure, particularly in energy, information technology, and logistics, will provide businesses with the necessary resources to operate efficiently.

Encouraging public-private partnerships, leveraging technology for better governance, and fostering market competition through regulatory oversight will create a more dynamic economic environment.

Strengthening institutions and ensuring policy consistency can be vital in positioning Pakistan as a competitive player in the global economy. Significant strides made by Georgia in simplifying business regulations and establishing efficient dispute-resolution mechanisms should serve as a model for Pakistan’s reforms.

Consistent implementation of pro-business policies has enabled Georgia to climb up global business readiness rankings, make it a preferred destination for investment. Pakistan’s future economic prosperity lies in its ability to embrace holistic reforms, foster business-friendly policies, and build a resilient governance framework.

Comparison with top-performing economies in the Business Ready 2024 report underscores the urgency for Pakistan to enhance its institutional frameworks and ease of doing business.

The gaps in service provision, regulatory enforcement, and financial inclusion must be addressed to ensure sustained economic growth. Mimicking best practices of leading economies such as Singapore, Estonia, and Portugal could cause Pakistan’s economic resurgence.

The business community in Pakistan must advocate for policy consistency, transparency, and streamlined regulations to ensure a more competitive economic framework.

Challenges facing Pakistan require bold and sustained policy interventions, which, if implemented effectively, can set the country on a path of economic resilience and long-term stability.

Failure to address these shortcomings can have dire consequences for Pakistan’s fiscal management and its ongoing engagement with the International Monetary Fund (IMF).

Fiscal deficit, if it continues unchecked, will make it difficult for the government to meet its debt obligations, leading to further debt-dependency and enhanced economic instability.

The inability to reform taxation and improve regulatory frameworks is bound to weaken revenue collection, forcing reliance on additional IMF loans, which come with stringent conditions. The deteriorating investment climate will discourage both local and foreign investors, further straining foreign exchange reserves.

The urgent need for structural economic reforms cannot be overstated, as failure to act will deepen financial vulnerabilities and hinder sustainable economic growth.

Copyright Business Recorder, 2025