Pakistan's 'Stabilisation' Strategy Hinders Real Growth

Prime Minister Shehbaz Sharif correctly identifies the detrimental effects of the US-Iran conflict on Pakistan and other regional economies. Geopolitical instability and energy disruptions inevitably strain fragile economies like ours. However, the persistent emphasis on 'stabilisation' by our economic managers warrants critical examination.

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Prime Minister Shehbaz Sharif is right to note that the US-Iran conflict has adversely affected Pakistan and other regional economies.

'Stabilisation' has, over time, become a buzzword in policy circles, often misused and misunderstood. Its narrow definition as a means to temporarily avert balance-of-payments crises or steady exchange rates, without fostering sustainable growth, is a flawed approach. Pakistan's recent economic trajectory starkly illustrates this. Under the guise of stabilisation, the economy has contracted sharply, industrial output has declined, purchasing power has eroded, and businesses have scaled back or ceased operations. This has led to stalled job creation, increased poverty, and widespread economic insecurity over the past three years.

This is not genuine stabilisation; it is merely a postponement of the inevitable next crisis. The flight of foreign investors, deterred by policy inconsistency, weak demand, and diminishing profitability, coupled with domestic capital seeking safer havens abroad, underscores this point. True economic stability is achieved through deep structural reforms that tackle the economy's fundamental weaknesses. This includes enhancing productivity, reforming the tax system, improving governance, strengthening institutions, investing in human capital, modernising industries, and boosting export competitiveness.

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stabilisation has perhaps become the most misunderstood and abused term in policy jargon.

Nations that have successfully stabilised their economies did not rely solely on demand compression and growth suppression. Instead, they leveraged adjustment periods to restructure, improve competitiveness, and pave the way for expansion. Pakistan, conversely, repeatedly employs 'stabilisation' as a tactic to delay essential reforms, resorting to demand cuts and import restrictions to manage recurrent crises. This cyclical approach traps the economy in stagnation. Each attempt to return to growth is thwarted by the same persistent structural issues: low exports, poor productivity, burdensome taxation, and external dependency, inevitably triggering another balance-of-payments crisis.

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This is not real stabilisation. It is merely postponing another crisis.

If Pakistan's economy had truly stabilised and embarked on a growth trajectory, the impact of the Middle East conflict and subsequent energy price shocks would not have been so severe. The government must shift its focus from merely promising and celebrating 'stabilisation' as an accomplishment. Economic stewardship should be measured not by reserve levels or fiscal discipline alone, but by its ability to create jobs, attract investment, increase incomes, and improve living standards for its citizens.

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True economic stabilisation only succeeds when accompanied by deep structural reforms that address the economy’s underlying weaknesses and focus on expanding productivity, reforming the tax structure, improving governance, boosting institutions, investing in human capital, modernising industry and creating export competitiveness.