As of August 2, 2025, Pakistan’s economy is under severe and urgent pressure due to high production costs, an unstable exchange rate, and new limitations imposed by US tariffs. In a South Asian landscape increasingly defined by cost-efficiency and export competitiveness, Pakistan is burdened with structural inefficiencies that continue to erode its economic resilience. In comparison, both India and Bangladesh are better equipped to absorb external shocks due to their rationalised utility costs, stable macroeconomic fundamentals, and consistent policy direction.
Industrial consumers in Pakistan pay nearly twice the power tariff of India and significantly more than Bangladesh.
The recent statistics published by the Economic Policy and Business Development Think Tank highlight the relative disadvantage that Pakistan is in. In Pakistan, industrial consumers pay power tariffs of between 13 and 15 cents per kilowatt-hour–up to twice as much as India, 6 to 9 cents, and far more than neighboring Bangladesh, with 9 cents on average. Even more distorted are the gas tariffs. The gas price of Pakistani industries stands at 15.38 dollars per MMBtu as compared to 6.75 dollars per MMBtu of Indian industries and 9 dollars per MMBtu of Bangladesh firms. These figures represent a deadly structural imbalance that directly translates to the cost of production, especially in energy-intensive industries like textiles, steel, and chemicals.
The application of US tariffs —19 percent on Pakistan, 25 percent on India, and 20 percent on Bangladesh — gives Pakistani exporters limited competitive opportunities; however, the inherent cost position nullifies this advantage. The 6 percent gap between Indian exports to the US market and those of other countries is not insignificant; it can only be significant when domestic inefficiencies are mitigated. Such a difference is unable to counter increasing energy prices, prevailing high interest rates, and depreciation of the currency, which have deteriorated the Pakistani export competitiveness under prevailing circumstances.
Pakistan has a very high interest rate of 11%, which is comparable to the rates in India (5.5%) and Bangladesh (10.5%). This measure of monetary tightening, intended to anchor inflation, has ironically restricted credit access to the private sector of the economy. Capex projects are currently low, and working capital cycles have been interrupted, particularly in small and medium enterprises (SMEs), which comprise the prominent industrial environment of Pakistan. Where focused stimulus or concessional financial structure has not been implemented, these companies are unable to access the market.
The exchange rate has also been shifting unfavorably. The Pakistani rupee is 283.75 to the US dollar, which is a sharp decline compared to previous years. That increases the costs of imports, especially the raw materials and machinery, which brings additional inflationary pressure. In comparison, the INR is 87.35 against the dollar, and the BDT is 122.18, denoting a particular aspect of stability. Even though a weak rupee promotes exports in theory, in real society, it increases the prices of inputs. It reduces the purchasing power in domestic industries, most of which are dependent on imports.
High interest rates and currency depreciation have created a liquidity trap in Pakistan’s real sector.
Operationally, the Pakistani manufacturers are simply out of the margin of error. Punjab textile manufacturers are saying that costs of input have risen more than 30 percent in the last 18 months, with the main contributors being the energy prices and the currency slippage. Already worrisome export orders originating in the US and EU, as to delivery schedules and cost of industry standards, are being redirected to Bangladesh and India, where the reduced price of inputs generates tighter bids and quick product deliveries. Factual observations in the textile centers of Faisalabad and Sialkot indicate that factory usage is receding, and most of them are working partially or closing off the second shift to save on expenses.
The importers and traders have experienced both demand-side and supply-side problems in the wholesale markets of Karachi. The depreciation of the rupee has made imports unaffordable for many middle-income consumers, and businesses are unable to restock due to constraints on working capital. All these pressures on money and fiscal spheres have culminated in the liquidity trap in the real sector, where the rate of turnover is very sluggish, and the defaults of credits in the informal lending market are soaring high.
This notwithstanding, Pakistan still has a few strategic levers. The US tariff of 19 percent is also low compared to the ones put on India, which offers a market share recovery possibility, especially in the mid-tier textile sector. Nonetheless, such a benefit can only be converted into long-term export growth if the government resolves the significant factors of the costs. Lowering of energy tariffs is the focus of this objective. A short-term solution to this could be to cross-subsidise the energy of the export-oriented industries. This means that the government could use the surpluses from other sectors like banking or telecommunications to offset the higher energy costs for these industries, thereby making them more competitive.
Also, the budgetary aspect needs immediate vigilance. The continued small amount of revenue base implies that the government continues to rely on indirect taxes and high-interest rates as means of financing its activities. A structural change in the tax code (and especially in documentation and enforcement), oriented to the digital world, would permit lower interest rates in the long run. This would facilitate the flow of borrowing at a lower cost, thereby supporting industrialization without necessarily destabilizing the economy.
A 19% US tariff advantage can only be leveraged if structural cost issues are addressed.
There is also a significant opportunity in trade diversification that Pakistan has yet to utilize fully. The current export basket is overly reliant on low-value-added textiles and rice. With the rupee’s weakness, there is potential to shift focus to IT-enabled services, halal processed foods, and niche manufacturing (e.g., medical equipment) with specific incentives and infrastructure facilitation. Moreover, the government should actively pursue free trade agreements with non-traditional partners, such as Central Asian republics and African countries, where competition with India and Bangladesh is minimal.
As an exporting nation, Pakistan’s export competitiveness cannot rely solely on favorable tariff taxes or currency devaluation. It is imperative to strategically reform the energy, taxation, and credit sectors to pave the way for sustainable recovery. The focus should shift from short-term firefighting to a more long-term strategy that builds the supply side, enhances regulatory consistency, and facilitates investment.
The next few months hold critical signals to keep track of by researchers: (1) actual usage of the tariff advantage in the US market; (2) how energy pricing is changing as LNG contract renegotiations take place; (3) central bank signals that may foreshadow a slow decrease in the policy rate; and (4) sector-based performance data (particularly of SMEs in export-oriented clusters).
The future is not very easy, yet it is not beyond control. Elements such as rationalisation of policy, disciplining of institutions, and coordination of the industry might still help Pakistan realise its potential. This, however, has a time limit to it, as the error range of the policy has become very small. Recovery is possible, and with proper strategies, Pakistan can pull itself out of these difficulties.
Pakistan’s export basket remains overly reliant on low-value-added textiles and rice.
In 2025, the economy in Pakistan will not be in free-fall, but it will be dangerously imbalanced. The country must take decisive action to ensure its strategic restructuring is implemented without delay, or it will lose ground to regional competitors who are also poised to tighten their belts and unlock the secrets of successful facility management. Its industries and the entrepreneurial flexibility of its business people are hard to doubt. The question is whether the state can provide the enabling environment that will convert that potential into actual, sustainable economic power.
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.
