LAHORE: While countries like Vietnam and Bangladesh that once trailed Pakistan have moved ahead by embracing consistent economic strategies and structural reforms, Pakistan has remained stuck in the lower-middle-income category.
Many economists believe Pakistan shows signs of being caught in a ‘middle-income trap’, but technically it is not fully in the trap yet because it has not firmly reached stable middle-income status. The Middle-income trap refers to a situation where a country rises from low income to middle income but then stagnates for decades.
The most important factor is Pakistan’s narrow export base. For decades, the country has relied heavily on cotton textiles and a limited range of low-value products. Even today, textiles account for well over half of Pakistan’s exports. While the sector has created employment and foreign exchange, excessive dependence on a single industry has prevented diversification into higher-value manufacturing such as electronics, machinery, and chemicals.
By contrast, Vietnam pursued a deliberate strategy of export diversification following the Doi Moi economic reforms. Over time, it moved from agricultural exports into electronics, machinery, and furniture. Today, global technology giants manufacture products in Vietnam for international markets.
Bangladesh followed a different but equally focused path. It built a powerful export engine around ready-made garments, developing economies of scale and integrating deeply into global supply chains. The country’s garment industry now dominates global apparel markets and has transformed its export earnings.
Pakistan’s policy inconsistency has also contributed to its economic stagnation. Countries that successfully industrialised maintained stable, predictable policies for decades. Vietnam remained committed to export-oriented manufacturing, while Bangladesh steadily supported its garment sector with clear incentives and simple regulations.
Pakistan, however, has repeatedly shifted between protectionism, subsidies, and short-lived export incentives. Industrial policy has often changed with political cycles, discouraging long-term investment in modern manufacturing. Businesses rarely commit large capital investments when policies appear temporary or unpredictable.
Another critical weakness is Pakistan’s limited investment in human capital. Economic upgrading requires a skilled workforce capable of supporting modern industries. Countries that advanced rapidly invested heavily in education and vocational training.
Vietnam built a strong base in science and technical education. Bangladesh improved literacy and expanded opportunities for women in the workforce. Pakistan, by contrast, continues to struggle with weak public education systems, skills shortages, and limited access to quality training. Bangladesh’s garment sector absorbed millions of female workers, significantly expanding the productive labour force and household incomes. Pakistan’s female labour participation remains far lower, reducing the country’s effective economic capacity.
Frequent macroeconomic instability has also held Pakistan back. Repeated balance-of-payments crises and recurring programmes with the International Monetary Fund (IMF) have created an environment of uncertainty. Currency volatility, high interest rates, and periodic import restrictions discourage both domestic and foreign investment.
Vietnam offers a striking contrast. It maintained macroeconomic stability while integrating aggressively into global trade networks. Through trade agreements and investor-friendly policies, the country attracted large-scale foreign investment from multinational corporations such as Samsung and Intel. These investments helped embed Vietnam into global manufacturing supply chains.
Pakistan has struggled to achieve similar success in attracting foreign direct investment into export-oriented manufacturing. Investors often cite regulatory uncertainty, infrastructure gaps and policy inconsistency as major obstacles.
Governance challenges and the persistence of a large informal economy also play a role. Informality reduces productivity, weakens tax collection, and prevents firms from scaling up into globally competitive enterprises. Countries that moved ahead gradually formalised their export sectors, enabling better productivity and access to international markets.
Pakistan’s stagnation reflects decades of structural weaknesses — narrow exports, inconsistent policies, weak human capital investment and recurring macroeconomic instability.
The lesson from Vietnam and Bangladesh is clear. Economic transformation requires long-term policy consistency, export diversification, investment in human capital, and integration into global supply chains. Without these structural shifts, Pakistan risks remaining trapped in the same income bracket for decades to come.
The country’s entrepreneurs have repeatedly demonstrated resilience and ingenuity. What they need now is a stable policy environment that rewards productivity, innovation, and export competitiveness. Only then can Pakistan break free from its prolonged economic stagnation and reclaim its growth potential.
