Pakistan has become remarkably good at stabilising crises. It is far less successful at preventing them.
Whenever pressure builds, the response is familiar: another task force, incentive package, protection measure or refinancing scheme. Some interventions are unavoidable in a crisis. The problem begins when temporary relief substitutes for reform. Instead of correcting the weaknesses that caused the crisis, policy manages their consequences until band-aids become part of the economic architecture.
The energy sector is the clearest example. For two decades, governments have contained circular debt through refinancing, renegotiated power purchase agreements, tariff increases, surcharges and subsidies. Each measure has bought time. Yet the causes remain: unutilised capacity, weak transmission, poorly governed distribution companies, delayed market reforms and pricing structures that push better-paying customers towards captive generation or solar power. As demand leaves the grid, fixed costs are spread over fewer consumers, pushing tariffs higher.
Industrial policy follows the same pattern. Tariff protection is justified as temporary support for infant industries, but often becomes permanent. Policy debates shift from when firms will compete without support to how much more support they require, drawing investment towards protected domestic markets rather than productivity and scale.
Export policy is no different. Concessional financing, tax concessions, rebates and exchange-rate adjustments may ease pressure, but they cannot offset expensive energy, weak logistics, inconsistent taxation, skills shortages and policy uncertainty. Export competitiveness cannot be subsidised indefinitely; it must be built.
The refinery upgrade policy points to an important distinction. Cleaner fuels, energy security and reduced dependence on imported petroleum products are clearly in the national interest. Strategic sectors may justify carefully designed, time-bound incentives.
The concern is when incentives become compensatory rather than strategic. Support for innovation, technology or resilience differs from support introduced merely to offset an uncompetitive business environment. When industries need special tax treatment, subsidised energy, exemptions or protection simply to invest, the economy-wide impediments are the real problem.
Tax policy shows the cost of incrementalism. Successive governments have layered withholding, advance, minimum and super taxes, exemptions and amnesties onto an already complex system. These measures deliver revenue, but raise compliance costs, discourage formalisation and burden those already inside the tax net.
Part of this reflects the realities of IMF-supported stabilisation. The Fund’s mandate is to restore fiscal sustainability, rebuild reserves and reduce vulnerabilities during the programme period. It therefore favours measures that raise revenue and reduce losses quickly.
A sovereign government’s responsibility extends beyond the programme period. It must pursue reforms that strengthen competitiveness, investment, exports and productivity. Higher power tariffs may improve accounts, but without governance reform, loss reduction, transmission investment and competition, they address the accounting consequence of inefficiency, not inefficiency itself. Higher withholding taxes may raise revenue, but they do not create a broad, simple tax system that encourages investment and compliance.
Why, then, do structural reforms prove so elusive? The answer lies less in economics than in institutions and political incentives.
Governments operate within short political time horizons. Structural reforms impose visible costs today while benefits arrive years later. Relief packages are easier to announce than reforms that successors may inherit.
Economic policymaking is fragmented. Tax, energy, trade, investment, industry and skills policies are designed in silos. Revenue authorities maximise collections, energy policymakers pursue cost recovery and trade policy protects domestic industry, while the country needs exports. Fresh concessions then offset distortions created elsewhere.
Modern economic policy has also become more technical. Competitive tax systems, electricity markets, industrial policy and investment frameworks require data, specialised analysis and sustained engagement with business and academia. Generalist civil servants need to be complemented by specialist policy institutions capable of rigorous design and evaluation.
Political economy is equally difficult. Every distortion creates beneficiaries. Tariff protection, tax exemptions, subsidies and preferential pricing generate powerful constituencies that resist change. The beneficiaries of reform are broader but less organised, without effective access to policymakers.
These constraints are not unique to Pakistan. Countries that transformed their economies reformed not only policies but also the institutions that produced them. Vietnam’s export success was built on consistency, logistics, skills, industrial zones and global integration, not recurring export packages. New Zealand replaced permanent farm subsidies with productivity incentives. India’s electricity reforms have shifted from repeated bailouts towards better governance, digital metering, stronger regulation and lower losses.
Pakistan has restored a measure of macroeconomic stability. The challenge is to turn stabilisation into structural transformation. Policy should be coordinated through a national competitiveness framework that aligns taxation, energy, trade, investment, education, and industrial policy around productivity, exports, investment and employment. Specialist institutions such as the Tax Policy Office should be matched by similar capacity across economic ministries. Major subsidies, protections and sector-specific incentives should carry sunset clauses and be independently evaluated before renewal.
Every major economic proposal should face one test: will it make itself unnecessary within the next decade? If yes, it is likely addressing a structural weakness. If no, it is probably another temporary fix. Pakistan must build institutions capable of looking beyond electoral cycles, programme horizons and sectoral interests.
Band-aids save lives in emergencies. Prosperity, however, is built by curing the disease rather than repeatedly dressing the wound.
The writer is a former CEO of Unilever Pakistan and of the Pakistan Business Council.
