he year 2025 was a year of hope and despair. The rich minted money and remained opitimistic that government policies will continue to favour them. The poor wondered when the fruits of economic stabilisation would reach them.

The government did try to bring some transparent reforms. In many cases it failed to implement those fairly. Where the reforms were implemented the economy benefitted immensely. In 2026, the planners must acknowledge that Pakistan’s governance crisis is a crisis of incentives. Those who benefit from the current arrangements have little motivation to change it. The cost of delay is rising. As economic pressures intensify and public trust erodes, reform may eventually be imposed by circumstance rather than choice. This could happen as early as 2026. Pakistan’s most persistent failure lies in the way the country is governed. The planners must facilitate the sectors of the national economy that showed promise in 2025.

Authority in Pakistan has gravitated toward a narrow circle of political, bureaucratic and economic elites. This concentration has produced a system that distributes privileges efficiently but delivers public goods poorly. Inequality is not only widening in income terms; it is becoming embedded in access to justice, services and opportunity. The perception of an unfair state is no longer confined to political rhetoric—it has become a lived reality. That need to change in 2026.

The reluctance to embrace reform is not accidental. The current order has worked remarkably well for those at the top. Effective governance reform will dilute discretionary power, weaken patronage networks and expose rent-seeking arrangements to scrutiny. The cost of this governance paralysis is borne by ordinary citizens. Public safety has eroded as crime, violence and insecurity have become routine features of urban life. Law enforcement remains under-equipped and politically constrained, undermining confidence in the justice system. Reasonable laws exist in most cases, but enforcement is selective. This reinforces the belief that accountability depends more on connections than one’s conduct.

Social development tells a similar story. Education and healthcare systems suffer from chronic neglect, mismanagement and leakage of funds. Social protection mechanisms remain inadequate in the face of rising poverty and population growth. Instead of acting as an equaliser, the state has become a multiplier of disadvantage, particularly for those lacking political or economic influence.

Pakistan’s future hinges on whether it can repair the state. Without governance reform, economic fixes will remain cosmetic and stability elusive. The question is no longer whether reform is needed—but whether it will come through foresight or through failure.

In 2025, economic stabilisation measures caused an increase in poverty. This trend could continue next year. Poverty is the pain of too little food after too many hours of work; the humiliation of dependence; and the moral agony of choosing between medicine for a sick child and bread for the rest of the family. While the policymakers celebrated “economic stabilisation,” in 2025 this pain deepened quietly, persistently and largely invisibly.

Millions were employed yet unable to afford basic nutrition. An employed individual still worrying about buying bread for his child is not an anomaly — it is the system working exactly as designed. Bangladesh protected export-linked jobs and prioritised social spending even under fiscal stress. Poverty pressures existed, but they were cushioned. Pakistan, by contrast, withdrew the cushion. Social protection remained fragmented, underfunded and erratic. Cash transfers lost their purchasing power.

Security — economic and social — is central to dignity. The poor describe security as continuity of livelihood, predictability of relationships and peace of mind. One bad crop can push a family into destitution it takes three good harvests to recover from. Pakistan’s elite did not grow poorer during the stabilisation; many grew richer. Asset prices recovered faster than wages. Tax policy remained regressive, relying heavily on indirect taxes that punish consumption rather than wealth.

Workers remained on the receiving end throughout 2025 not merely because of subdued economic activity but also due to a deep and persistent disregard for their dignity, welfare and fundamental rights. This must change in 2026. Wages are often cited as the core labour issue. The pressure on Pakistan’s workforce has increasingly come from non-monetary factors—lack of respect, absence of social protection, weak enforcement of labour laws and exploitative employer behaviour. These silent stressors have eroded morale, productivity and social cohesion.

Domestic help, home-based workers, sanitation staff, nurses and community health workers should be ensured decent working conditions. These occupations form the backbone of Pakistan’s care economy, yet they remain among the most undervalued and least protected. In 2025, sanitation workers continued to risk their lives without proper safety equipment; domestic workers remained excluded from labour law protections in some provinces; and community health workers faced delayed salary payments despite being critical to public health delivery.

In Pakistan, disrespect is often normalised. Workers are shouted at, denied leave for family emergencies and at all times made to feel replaceable. Even small gestures — timely communication, recognition of effort, humane scheduling — are frequently absent. Showing respect costs nothing but manifest disrespect exacts a heavy economic price. Employers who complain about low productivity must confront the fact that dignity is a productivity input.

Another uncomfortable reality is employer behaviour during economic stress that is likely to continue in 2026. In 2025, many businesses passed the entire burden of adjustment onto workers — freezing wages, extending working hours and reducing benefits — while protecting profits, perks and inefficiencies at the top. Risk-sharing was absent; vulnerability was one-sided. Pakistan’s labour crisis is not only an economic issue; it is a moral crisis as well.

Pakistan must move from a low-wage, low-respect labour model to one anchored in dignity, protection and fairness. Decent work is not a luxury to be pursued after growth — it is a prerequisite for it. If workers continue to be unseen and unheard, the cost will not only be borne by them alone, but also by the economy and the society at large.

Pakistan’s textile industry had entered 2025 with cautious optimism. As the calendar year draws to a close, the sector’s performance tells a story of modest gains, deep structural weaknesses and worrying signs of stagnation in some of its subsectors.

The strength in the first half was not broad-based. Traditional segments lagged behind and the growth was too feeble to reset long-term export ambitions. These months also saw significant volatility in monthly export performance, with some months reporting contraction, a sign that export demand was not robust.

Several structural weaknesses underlie these modest gains. It includes over-dependence on a few markets with limited diversification. Low penetration of high-value and fashion apparel segments was evident. Exporters faced persistent competitive disadvantages against regional rivals like Bangladesh and Vietnam.

The 2025 performance of Pakistan’s textile sector should prompt intense policy introspection. The sector — once the pride of Pakistan’s export economy — is stumbling against structural inefficiencies, weak export demand and delayed government support. Export incentives have to be timely, predictable and market-aligned. Investment in technology and supply chain upgrading must go beyond one-off machinery imports. Pakistan’s textile sector — which grew in nominal terms — cannot be satisfied with survival; it must aim for global competitiveness.

There were some success stories in 2025. That should strengthen the economy in the New Year. For instance, after two bruising years marked by import curbs, plant shutdowns and collapsing consumer confidence, the automobile sector finally showed signs of stabilization. However, structural fault lines still exist.

The passenger car segment witnessed a modest uptick in demand during July-November, particularly in entry-level and lower mid-range models. This improvement, however, was far below the historical norm. One major reason was the State Bank of Pakistan’s cap on auto financing at Rs 3 million, a threshold that does not cover even the lowest-priced locally assembled car.

More damaging is the application of the same Rs 3 million cap to project financing loans, payable over five years. Auto manufacturing projects typically have long gestation periods and heavy upfront capital costs. Such restrictive financing limits have rendered expansion, localisation and technology upgrades commercially unviable.

A notable positive development was the government’s shift away from arbitrary tariff protections for used cars toward non-tariff barriers such as safety and emission standards. Pakistan’s EV policy, though ambitious on paper, remains skewed toward imports. The continued inflow of CBU electric vehicles has dampened prospects for technology transfer. Numerous EV components—ranging from body parts to electrical assemblies—can be localised at current volumes.

The motorcycle segment emerged as the sector’s strongest performer in 2025 and is set for higher growth in 2026. Conventional bikes, electric motorcycles and scooters all recorded robust demand, driven by affordability, urban mobility needs and limited public transport options. This segment faced no major policy bottlenecks, demonstrating how predictable regulation and market-aligned pricing can unlock growth even in constrained economic conditions.

The tractor segment tells a cautionary tale of flawed policymaking. With annual demand exceeding 60,000 units, the market should be booming.

Faced with depleted fiscal space, high debt servicing and limited borrowing capacity, policymakers have chosen to initiate long-gestation projects in minerals and chemicals, indigenous coal development and defence production—sectors traditionally avoided precisely because they do not deliver quick political or financial returns. This shift, modest in appearance but profound in implication, stands out as one of the most underappreciated silver linings of Pakistan’s economic journey in 2025.

The renewed focus on minerals and downstream chemicals is perhaps the most telling. Pakistan has long possessed geological wealth, yet remained a marginal player in global mineral markets. In 2025, the emphasis shifted from rhetoric to frameworks — legal clarity, security arrangements, revised contracts and discussions around local processing rather than raw exports. While revenues will take years to materialise, the decision to treat minerals as an industrial foundation rather than a speculative asset marks a structural correction.

Defence production — signals an even deeper ambition. Defence manufacturing is no longer being discussed solely through the lens of security or self-reliance, but as an export-oriented industrial ecosystem. Even limited success in defence exports carries disproportionate benefits: precision engineering, electronics, materials science and skilled human capital that spill over into civilian manufacturing. Unlike traditional industries, defence production builds capabilities that are difficult to replicate and harder to relocate.

As Pakistan closes the books on 2025, the pharmaceutical industry stands out as one of the few large manufacturing sectors that not only survived economic turbulence but quietly strengthened its foundations. While price adjustments — after years of suppressed margins — contributed significantly to value expansion, volumes also stabilised, signalling improved availability of medicines that had earlier faced chronic shortages.

Local manufacturers drove most of this stability. Pakistani firms now command over 70 per cent of the domestic pharmaceutical market by value and an even higher share by volume, reflecting their strength in generics, branded generics and mass-market formulations. Multinational companies, though fewer in number, continue to dominate select therapeutic niches and higher-value molecules, accounting for roughly 30 percent of market value.

The narrative of multinationals “leaving Pakistan” in 2025 needs nuance rather than alarm. Over the past few years, several global pharma giants rationalised their footprints worldwide; Pakistan was not an exception. Some international companies exited direct operations; others merged globally and continued operations locally under consolidated ownership or licensing arrangements.

Notably, the capacity did not disappear. In most cases, manufacturing plants, product portfolios and skilled workforces were absorbed by Pakistani companies. By 2025, medicine availability had improved markedly, and the incidence of discontinued lifesaving drugs declined.

Pakistan’s pharma exports crossed $450 million, marking one of the fastest growth rates in more than two decades. While still modest relative to global players, the trajectory is unmistakably upward.

Pakistan’s advantage lies in its cost competitiveness, English-speaking technical workforce and expanding regulatory maturity. With the right export incentives, regulatory harmonisation and diplomatic support, the sector can realistically double exports within the next five years. The sector has moved from survival mode to strategic consolidation and from domestic focus to export ambition.

The writer is a senior economic reporter