Sustaining growth

Pakistan’s economy is stabilising again. Growth recovered to an estimated 3.7 per cent in the fiscal year just ended, inflation has eased from its recent peaks, remittances have strengthened, and the current account remained broadly balanced for much of the year.

S&P also upgraded Pakistan’s sovereign credit rating from B- to B, recognising the continued implementation of reforms and improving institutional stability.

All of this is encouraging but none of it means the economy is safe. Pakistan has repeatedly confused stabilisation with resilience. Stabilisation improves today’s economic indicators. Resilience determines whether those gains survive tomorrow’s flood, oil shock, export disruption or geopolitical crisis. For decades, Pakistan has focused on repairing the economy after each crisis, while paying far less attention to building one capable of withstanding the next.

The IMF expects global growth to remain subdued in 2026 as geopolitical tensions, trade fragmentation and technological disruption reshape the world economy. For Pakistan, these are not distant global events. They translate into higher energy costs, pressure on the rupee, weaker export demand and greater uncertainty for investors.

The recent US tariff measures reinforce the point. Export competitiveness can no longer depend solely on lower wages, tax incentives or exchange-rate adjustments. It increasingly depends on whether businesses can withstand disruption and recover quickly when conditions change.

Yet Pakistan’s policy debate remains remarkably familiar. Whenever exports weaken, attention returns to cheaper electricity, tax concessions, exchange-rate policy and industrial zones. These reforms matter, but the frequent comparison with Bangladesh and Vietnam overlooks a crucial difference.

Pakistan admires Bangladesh’s garment exports and Vietnam’s manufacturing success, yet pays far less attention to the institutional architecture that protects productive assets and enables businesses to recover quickly from crises. Pakistan wants their factories and exports without building the risk-management institutions that sustain them.

Vietnam’s success is not simply the result of lower labour costs or export incentives. Its businesses operate within sophisticated systems of commercial insurance, trade-credit protection, cargo insurance and risk management that reduce uncertainty and encourage long-term investment.

Pakistan’s growth model, by contrast, has concentrated on creating productive assets while underinvesting in protecting them. Essentially, growth is not reaching households with sufficient force. Pakistan’s latest official poverty estimates show that the poverty rate increased from 21.9 per cent in 2018-19 to 28.9 per cent in 2024-25, with rural poverty reaching 36.2 per cent. Although macroeconomic conditions improved during FY2025-26, many households remain financially fragile, while the World Bank estimates that inflation, economic instability and the 2022 floods pushed millions more Pakistanis into poverty.

In these circumstances, telling poor families simply to purchase insurance would be economically tone-deaf. Many households struggle to afford food, electricity, transport and healthcare. But that is precisely why insurance should be viewed as economic infrastructure, not merely as a financial product. Just as roads connect markets and electricity powers factories, effective risk-transfer mechanisms protect productive assets during economic shocks.

A medical emergency, crop failure or flood can force families to sell livestock, close businesses, withdraw children from school or borrow at high interest rates. Properly designed insurance is therefore not simply a financial service; it is an anti-poverty instrument.

Recognising insurance as economic infrastructure also changes the role of the state. Government should not attempt to insure every risk itself. Instead, it should create the conditions for affordable and effective protection through targeted premium support for vulnerable groups, public-private partnerships, digital distribution, reliable claims enforcement and better risk data.

Three priorities stand out. First, protect productive assets. Agricultural and livestock insurance should become an integral part of Pakistan’s climate strategy. Millions of farmers remain exposed to floods, droughts and extreme weather. Index-based insurance linked to weather or crop yields could provide rapid compensation without relying on politically driven relief programmes.

Second, protect the public balance sheet. The 2022 floods affected around 33 million people, yet most losses were uninsured. As a result, reconstruction depended heavily on emergency borrowing, donor assistance and cuts to development spending. The disaster effectively migrated from the floodplain to the national balance sheet. Stronger catastrophe-risk financing would reduce that fiscal vulnerability.

Third, protect export competitiveness. Pakistani exporters increasingly require trade credit insurance, political risk cover, cargo insurance and business interruption protection. Firms facing buyer defaults, shipping disruptions or sudden tariff changes need mechanisms that allow production to continue while new markets are secured.

This is the missing dimension in Pakistan’s comparison with Vietnam and Bangladesh. Their success also reflects institutions that reduce uncertainty, preserve productive assets and strengthen investor confidence.

As the global economy becomes more fragmented, resilience itself is becoming a competitive advantage. The countries that prosper in the coming decades will not necessarily be those that grow the fastest during good times. They will be those that recover the fastest from shocks.

For Pakistan, the issue is therefore not whether it develops a larger insurance industry but whether private losses continue to become public liabilities, forcing the state to absorb costs that could have been managed more efficiently. Every uninsured shock eventually reappears as higher public borrowing, emergency relief or lost economic output.

Pakistan’s recent stabilisation has created valuable breathing space, but it should not be mistaken for lasting resilience. For decades, Pakistan has asked how to generate growth. The next generation of reforms must ask a different question: how can that growth survive the next shock?

The answer lies not in another subsidy or another industrial zone alone, but in building institutions that protect productive assets, reduce uncertainty and preserve economic progress.

The writer is a senior lecturer in finance, leading International and Transnational Education at Birmingham City University’s College of Accountancy, Finance and Economics. He tweets/posts @HafizUsmanRana