LAHORE: For decades, the stewards of our state traded long-term economic viability for short-term political convenience. Today, the bill has arrived, and the citizen is paying it through hyperinflation, closed factories, and a hollowed-out agricultural core.
Unfortunately, many of those decisions were either poorly designed, politically motivated or left unreformed long after their flaws became obvious. The power sector offers perhaps the clearest example. In an effort to attract investment, Pakistan guaranteed returns to power producers and linked many payments to the US dollar. As the rupee depreciated over time, the burden on consumers and the national exchequer increased dramatically. Even more damaging were capacity payment obligations that require the government to pay producers regardless of whether electricity is purchased. Today, these fixed charges consume enormous public resources and have become a major contributor to the circular debt crisis. Citizens are paying for electricity that is often not consumed, while industries struggle under some of the highest energy costs in the region.
Compounding this error was the catastrophic ‘take-or-pay’ clause. The state committed to paying exorbitant fixed capacity charges for up to 60 per cent -- and in some years, nearly 70 per cent-- of production capability, regardless of whether a single unit of electricity was ever consumed. Had these fixed, non-procurement charges been capped at a sustainable 30 per cent, the state could have absorbed the buffer while allowing private investors a fair return. Instead, idle power plants became sovereign parasites, siphoning trillions of rupees in circular debt directly from the national treasury.
Agriculture, the backbone of Pakistan’s economy, presents another tale of neglect. Unlike many successful agricultural economies, Pakistan never developed a sustained long-term strategy focused on productivity. Research into high-yield seed varieties remained inadequate. Water, perhaps the country’s most precious resource, continued to be treated as if it were unlimited. Excessive consumption was rarely discouraged, while water conservation technologies received limited support. The failure to substantially expand water storage capacity has further exposed the country to recurring shortages and climate-related risks.
Our industrial landscape tells an equally tragic story of distorted incentives. For over half a century, Pakistan’s industrial framework has rested on the crutches of aggressive protectionism. High import tariffs shielded large, politically connected conglomerates from global competition, completely destroying their incentive to innovate or export. Meanwhile, the true engine of employment, small and medium enterprises (SMEs), has been systematically starved since the 1990s. Choked by prohibitive interest rates and pulverized by the highest energy prices in the region, thousands of SMEs have quietly vanished. The economy has mutated into a system where larger, inefficient industries survive on state-sponsored subsidies, while the entrepreneurial base is taxed into oblivion.
Trade policy has also been undermined by poor enforcement. Smuggling and under-invoicing have flourished for years, creating an uneven playing field for law-abiding businesses. Manufacturers paying taxes, utility bills, and compliance costs find themselves competing against goods entering the market through illegal or semi-legal channels. Such distortions discourage investment and weaken the productive economy.
Perhaps the most damaging factor has been the steady rise of corruption. Corruption acts as a hidden tax on every economic transaction. It increases costs, rewards inefficiency, discourages transparency, and erodes public trust in institutions. Resources that should be directed toward productive investment are instead diverted toward rent-seeking activities. No economy can sustain high growth when merit, efficiency, and accountability are consistently undermined.
Pakistan’s challenges are therefore not simply financial; they are structural. The country is paying the cumulative price of decades of policy mistakes, delayed reforms, and weak governance. Sustainable recovery will require more than temporary financial assistance or periodic stabilisation programmes. It demands difficult but necessary reforms that prioritize efficiency over patronage, productivity over protection, and long-term national interests over short-term political considerations.
Economic prosperity is not built through slogans or emergency measures. It is built through sound policies, strong institutions, and the courage to correct mistakes before they become national crises. Pakistan’s future depends on learning from the decisions that created its present difficulties.
