It is a time of crossroads for Pakistan’s economy. There is a mix of optimism and caution, according to recent trends. In FY2024, the agricultural sector has grown strongly at 6.2 percent but is likely to slow down in FY2025 due to high base effects and low provincial production of key commodities like wheat and cotton.

There is an urgent need for a comprehensive strategy that would prioritize diversification and climate resilient agricultural practice

Last year saw both favorable weather conditions and increased credit disbursements and also strategic government interventions on the part of new GDP record breaking economies. However, the present contraction emphasizes that the industry will remain susceptible to external factors, in particular climate variability and global price variations, which it generally coordinates to the sector’s adaptation to emerging threats, although such an adaptation is accompanied by costs in economic terms. Considering this, there is an urgent need for a comprehensive strategy that would prioritize diversification and climate-resilient agricultural practice.

The industrial sector also appears to recover in parallel, especially in the textiles area. Tracing back, the textile industry has been the backbone of Pakistan’s export economy playing its role in generating employment and foreign exchange earnings. However, the increasing tendency to resume textiles is complimented by more favorable macroeconomic conditions – easing exchange rate pressures, government policies favorable to textiles, and relaxation of import restrictions – as the sum of these have helped to lessen the production cost and improve competitiveness. But while this recovery is good, it is uneven. Due to persistent structural problems, such as energy shortages and obsolete production facilities, sustained industrial growth has been almost impossible. To maintain or to even further improve the pace of this upward trend, investment in technology and infrastructure is vital.

The service sector’s resilience is a good testament of changing aspects of Pakistan’s economy — from urbanization to improved digital connectivity, leading to increased productivity and innovation

At the same time, the service sector keeps on soaring high due to increased domestic activity along with robust trade development. This sector’s resilience is a good testament to changing aspects of Pakistan’s economy — from urbanization to improved digital connectivity, leading to increased productivity and innovation. The improved access in the services sector also leads to a multiplier effect on the agriculture and manufacturing sectors due to added consumer spending. However, long-term sustainability requires that Pakistan address productivity gaps and invest in human capital development to realize this sector’s potential.

Pakistan’s recovery is closely tied to the interplay of these sectors. It depends on agriculture and industry for growth, although the slowdown in agricultural yields and the industry’s continued challenges suggest that the recovery is weak. Therefore, policy interventions have to be multifaceted. To maintain agriculture, efforts to diversify crop portfolio and invest in the field of research and development of more receptive crop yields are crucial.

Such measures would become means to overcome risks ensuing from climatic unpredictability and global market volatility and reach a steadier output. Public-private partnerships can also be very useful to the industrial sector, especially the textile industry, in adopting contemporary methods of production that reduce cost of accessing energy and adopting higher technology.

Broadening the tax base, cutting out of unnecessary subsidies, and putting reforms in place which raise revenue without stifling growth are the need of the hour

The second is the necessity of making fiscal projections and introducing structural reforms. Despite high public debt of Pakistan and fiscal deficits persisting (KPMG Economic Brief 2024), the government needs policies to bring the long term debt sustainability and a balance between policy stimulus. Broadening the tax base, cutting out of unnecessary subsidies, and putting reforms in place which raise revenue without stifling growth are the need of the hour. In the long run, this can help in an efficient allocation of resources between infrastructural and education sectors that are likely to lead to a more inclusive growth model for the larger population.

Also, a significant role is played by regional dynamics. In competition with relevant states, whose industrial capacities are improving. Pakistan also needs to broaden its strategic focus on export diversification. New markets and moving up the value chain—from raw textile exports to high value-added products—will not only expand Pakistan’s trade balance substantially but will also reduce the vulnerability of Pakistan to external shocks.

At a time like this, the state of affairs are improving and the recent measures taken by the State Bank of Pakistan like a series of rate cuts to ease borrowing costs and stimulate investment are providing some respite. Nevertheless, these monetary policies should be complemented by structural reforms to ensure that the benefits of lower rates are transmitted effectively into the overall economy.

For building a resilient economy, it is necessary to have a comprehensive approach comprising of technological innovation, targeted fiscal reforms and concentration on sustainable practices

So, finally, Pakistan’s recovery, as well as the ability of its economy to recover, is a delicate balancing act of immediate and long term strategic interventions. While agriculture and services has shown positive growth rates, agricultural outputs need to be sustained and industrial outputs are to be revived. For building a resilient economy, it is necessary to have a comprehensive approach comprising of technological innovation, targeted fiscal reforms and concentration on sustainable practices. If policymakers can tackle these diverse challenges, Pakistan can stabilize its economic recovery and become a more competitive player in the global market.

At such a time of transition, the government’s capacity to formulate and implement coherent and decisive policies to help leverage the momentum that Pakistan is enjoying today towards sustained, long term growth will matter significantly. At present, we face a road ahead that is difficult but is also full of promise if we can ensure prosperity for all our citizens in a resilient manner in the face of global uncertainties.

Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.