LAHORE: Our economy is again struggling with the same hurdles it faced decades ago. Despite repeated experiments with liberalisation and macroeconomic stabilisation, the country has failed to achieve sustainable growth. The missing link remains the strong, credible institutions.
Economic history shows that liberalisation alone is not enough. Countries that prospered complemented reforms with institutions that enforced the rule of law, secured property rights, and ensured fair regulation. In Pakistan, weak institutions have undermined every reform effort. Weak institutions cannot handle any crisis be it natural disasters or global economic turmoil.
One glaring example of institutional weakness is the repeated failure of privatisation. For decades, governments have announced ambitious programs, yet even chronic loss-making entities like Pakistan International Airlines (PIA) remain in state hands, draining billions each year. Similar inefficiencies persist across public enterprises, where political considerations override economic logic. We need resources to help flood affected people but instead we are regularly wasting money to feed the inefficient institution mired in corruption.
Democracy here has often been introduced without first establishing institutional foundations. Civilian governments inherit weakened systems from authoritarian regimes, but instead of reforming them, they repeat the same mistakes. Populist projects are launched while older ones remain incomplete, draining resources and eroding public services. Over time, education, healthcare, infrastructure and law enforcement have all suffered steady decline.
This fragility is evident in hard numbers. Pakistan’s tax-to-GDP ratio has dropped from 13.5 per cent to below 10 per cent, leaving the state unable to deliver basic public goods. Capital flight continues unchecked, with more than $200 billion reportedly held abroad by influential Pakistanis. Enforcement of property rights and contracts remains unreliable, discouraging investment and encouraging crime.
The shadow economy has grown into a parallel system. Instead of channelling resources into competitive industries, weak institutions have allowed informality and rent-seeking to flourish. A poor regulatory framework fuels tax evasion, low wages and banking arrears. This creates a vicious cycle: low revenues weaken institutions, and weak institutions further depress revenues.
Countries with strong governance — democratic or otherwise — manage the transition from inefficient to competitive industries by cushioning short-term losses. Pakistan, however, resists reforms because they are politically costly. As a result, inefficiency is protected while merit and competition are discouraged.
Every boom-and-bust cycle in Pakistan follows the same pattern: growth rises temporarily when external inflows or favourable global conditions arrive, only to collapse once underlying weaknesses resurface. This cycle will persist unless the real issue is addressed — building durable institutions.
The policy agenda must shift decisively. Strengthening rule of law, reforming taxation, securing property rights, enforcing contracts, modernising markets for land, labour and capital, and restructuring state-owned enterprises are essential steps. The banking system may be relatively stronger, but growth cannot be sustained when most other institutions underperform.
Pakistan has long hoped for shortcuts, expecting rapid liberalisation or temporary foreign support to fix structural flaws. That illusion has cost the nation dearly. Sustainable prosperity requires long-term commitment to institution building, not populist gestures.
Until Pakistan invests seriously in its institutions and removes the burden of loss-making state enterprises, economic growth will remain fragile, uneven, and vulnerable to shocks. The country has the potential to prosper, but without credible reforms, it will continue to stumble on the same roadblocks faced for generations.
