State Bank

Pakistan's economic debate focuses on the inefficiency of government spending versus private investment, with private investment generating higher returns but stagnant productivity preventing compounding growth. The article highlights low productivity in Pakistan compared to India, Vietnam, and Bangladesh, and suggests reforms like export discipline, skills development, and technology adoption for SMEs to improve output per rupee.

The article argues that devaluing the rupee to boost exports is ineffective due to high import dependency in production. Research shows exports respond weakly to exchange rate changes, and 37% of export value relies on imported inputs. Structural issues like energy costs, productivity, and trade facilitation are highlighted as critical factors, contrasting with examples of Vietnam and South Korea's success through diversification and reforms.

Regional instability in the Gulf is negatively impacting Pakistan's economic outlook, causing declines in foreign direct investment, domestic bond inflows, and foreign equity investments in FY26. Pakistan faces a $35bn trade deficit and relies heavily on remittances, while analysts warn that Gulf tensions could deter foreign investors despite growing diplomatic ties with Gulf nations.