Islamabad (Digital Post) Economic stability remains a distant dream

Islamabad (Digital Post) The report issued by the central bank regarding the first half of the current fiscal year presents a comprehensive review of the country’s economy. The report acknowledges temporary stability while also highlighting serious internal and external risks. According to the State Bank, real GDP growth during the first half of fiscal year 2025-26 remained at 3.8 percent. Despite global trade uncertainty and challenges such as domestic floods, Pakistan’s macroeconomic stability improved further during the first half of fiscal year 2026.

The report further stated that the conflict in the Middle East poses major risks to the macroeconomic outlook, surrounded by a high level of uncertainty. Resulting disruptions in supply chains may affect inflation, external trade, and remittance flows, which in turn could impact economic activity in Pakistan.

According to the State Bank, despite momentum in economic activities and high commodity prices, the current account deficit is expected to remain close to the lower end of the previous estimate of zero to one percent of GDP. However, due to rising international oil prices and their impact on other commodity prices, consumer price inflation is expected to remain above the upper limit of the medium-term target of 5 to 7 percent for most of fiscal year 2027.

Under difficult economic conditions, a growth rate of 3.8 percent may not be fully satisfactory but can certainly be considered encouraging. However, the bitter reality is that even an economy growing at this pace does not appear capable of providing public relief or creating significant new employment opportunities.

Economic indicators remained relatively positive during the first half of the year, but the threats of deterioration still remain. We are fully aware of our economic decline and also understand its causes and factors. We also know how these issues can be addressed, but despite knowing all this, we have been unable to remove the creeping vine of economic hardship surrounding us.

The practical steps required to remove this burden have not been effectively implemented. International financial institutions and friendly countries continuously highlight the importance and necessity of reforms in Pakistan’s economy. To make the national economy self-sustaining, Pakistan must move towards self-reliance and adopt both short-term and long-term policies.

Loan programs have somewhat stabilized the balance of payments, but the destination of economic stability is still far away. Economic stability requires increasing national productivity and wealth creation. Increased exports, reduced imports, and foreign investment are the basic indicators of a strong and stable economy, but in Pakistan’s case all three indicators remain negative.

Continuous decline in exports and increasing trade deficits indicate the existence of fundamental and structural weaknesses within the economy. Persistent weakness in exports has raised serious questions regarding the country’s ability to earn sustainable foreign exchange in the medium term. This prolonged decline further strengthens the perception of weak export performance, which both domestic and foreign investors consider important while assessing economic growth potential.

The widening gap between exports and imports increases uncertainty regarding external sustainability. For investors, continuous trade imbalances and weak exports can become discouraging factors. When export earnings remain under pressure, businesses avoid investing in new projects, increasing production capacity, or investing in technologies that improve productivity. Such behavior slows investment activity and weakens economic growth.

Its impact on economic growth is particularly important because exports are considered a major engine of growth. Due to prolonged export declines, the economy increasingly relies on either domestic demand or external financial resources. Meanwhile, rising trade deficits also restrict financial and policy space, affecting development expenditures and growth-enhancing measures.

Investor confidence is also linked with future competitiveness and economic stability. Persistent trade contraction strengthens perceptions of weakness, affecting long-term planning and risk assessment. Declining exports also discourage innovation, quality improvement, and technological advancement, although these are essential factors for increasing productivity and ensuring sustainable development.

Overall, the figures show that Pakistan’s persistent trade contraction is damaging investor confidence and weakening prospects for economic growth. Long-term declines in exports and increasing trade deficits clearly indicate challenges facing the external sector. If export performance does not stabilize and trade imbalances are not reduced, these trends may continue causing cautious investment behavior and limited economic growth in the future.

Government officials may continue making optimistic claims regarding the economy, but the reality remains that Pakistan’s economy currently stands on temporary stability supported by remittances and foreign loans. Under uncertain conditions, economic instability could return again. Therefore, it would be better for the government to utilize this temporary stability as an opportunity to focus on long-standing issues.

The government’s challenge is to identify sectors outside the tax net and collect revenue from them. This will only be possible if the government itself seriously undertakes structural tax reforms and addresses fundamental issues in the sector. If temporary measures continue merely to satisfy the conditions of financial institutions, then the outcome will likely not be different from the past.