rime Minister Muhammad Shahbaz Sharif’s remarks on Pakistan’s economic direction and bilateral relations with Turkiye highlight a commitment to resilience and strategic partnerships. His vision of expanding trade with Turkiye to $5 billion aligns with Pakistan’s broader economic objectives and ongoing reforms.
The country’s economic progress, as detailed in the State of Pakistan Economy 2025 half-yearly review, reflects a steady recovery from recent downturns and offers insights into the feasibility of such ambitious trade targets.
Pakistan’s economic environment has shown incredible improvement following stabilisation efforts in fiscal year 2024. After experiencing a contraction of 0.2 percent in FY2023, GDP growth rebounded to 2.5 percent in FY2024, setting the foundation for continued momentum. In the first quarter of FY2025, GDP growth stood at 0.92 percent, indicating gradual progress despite a slower pace compared to the previous year. The key sectors, particularly agriculture and services, have played a key role in this recovery. While the industrial sector remains a concern, with contractions slowing down from — 4.43 percent in FY2024 to — 1.03 percent, these figures suggest an overall path toward stabilisation.
The external sector has seen significant improvement, creating a favourable backdrop for expanding trade with Turkiye. The current account balance recorded a surplus of $1.21 billion in the first half of FY2025, a stark contrast to the $1.39 billion deficit in the same period last year. This shift was driven by a 32.8 percent surge in remittances, reaching $17.8 billion and a resilient export performance.
The textile exports, which contribute 53 percent of total export earnings, increased by 5.2 percent to $8.6 billion, supported by strong demand for knitwear and garments. Strengthening trade ties with Turkiye could further boost Pakistan’s exports and diversify its trade portfolio.
Foreign direct investment (FDI) has also played a key role in Pakistan’s economic progress. In the first half of FY2025, FDI inflows grew by 20 percent, reaching $1.329 billion. Major contributions came from China, Hong Kong and the United Kingdom. The energy and financial sectors attracted the most investment. This increasing investor confidence shows the positive impact of ongoing economic reforms.
However, achieving the ambitious $5 billion trade target will require addressing key structural challenges. The industrial sector remains a critical area for intervention, particularly sub-sectors such as mining, quarrying and construction.
The construction sector contracted 14.91 percent in the first quarter of FY2025, reflecting weak domestic demand and rising input costs. These challenges can be addressed by necessitating targeted reforms, infrastructure investments and measures to improve the ease of doing business.
The Uraan Pakistan initiative, a five-year economic transformation plan, aligns with these objectives by emphasising export growth, digital transformation and climate resilience. The initiative aims to elevate exports to $60 billion, focusing on IT, engineering and agro-products, while increasing the share of renewable energy to 10 percent of the energy mix. These targets reflect a broad shift towards a diversified and sustainable economic model. The growth of the services sector, particularly the information and communication industry, has been instrumental in this transition, with service exports rising by 6.8 percent to $4.05 billion in the first half of FY2025.
Economic stability is further supported by improvements in inflation and monetary policy. Inflation, which peaked at 29.2 percent in FY2023, declined significantly to 7.2 percent in the first half of FY2025, aided by stable exchange rates, easing global commodity prices and targeted government policies.
The State Bank of Pakistan has responded by reducing the policy rate to 12 percent as of January 2025, a move expected to enhance business confidence and support economic activity. This accommodative monetary stance aligns with the government’s broad economic agenda, creating an environment conducive to sustainable growth.
Despite positive indicators, many challenges remain. Sustaining economic momentum will require continued structural reforms, investment in key industries and efforts to enhance export competitiveness.
Fiscal discipline has been a cornerstone of Pakistan’s economic recovery. The fiscal deficit was reduced to 0.04 percent of GDP in the first half of FY2025, a significant improvement from the 1.3 percent deficit recorded in the same period last year. The strong revenue growth, supported by tax and non-tax revenues, has sustained fiscal stability. Public debt management reforms have led to a decline in the debt-to-GDP ratio to 67.5 percent, the lowest level in five years. These developments show the government’s commitment to long-term fiscal consolidation and economic resilience.
Despite the positive indicators, many challenges remain. Sustaining economic momentum will require continued structural reforms, investment in key industries and efforts to enhance export competitiveness. The government must also focus on improving infrastructure, streamlining regulations and fostering innovation to drive economic growth.
The government’s aim of strengthening economic partnerships, such as the one envisioned with Turkiye, can serve as a catalyst for expanding trade and attracting further investments.
To ensure sustainable progress, the government must adopt a multi-faceted approach to economic policy. Industrial growth should be prioritised and encouraged through incentives for manufacturers, particularly in high-value industries such as technology, automotive and pharmaceuticals.
Improvements in education and vocational training will be necessary to equip the workforce with the skills required for a modern economy. The banking sector should also be leveraged to provide easier access to credit for small and medium enterprises (SMEs), which are essential drivers of economic growth.
A key challenge to address is energy security. Pakistan has long struggled with an unstable energy supply. This hampers industrial productivity and deters foreign investment. Expanding the renewable energy sector, as highlighted in the Uraan Pakistan initiative, will help reduce dependency on fossil fuels and create a more sustainable power infrastructure. Public-private partnerships should be encouraged to fund major energy projects, ensuring steady progress toward energy self-sufficiency.
Strengthening governance and tackling corruption will be essential for maintaining investor confidence. Transparent regulations and efficient processes will create an environment where businesses can thrive. The digitalisation of government services and tax collection systems can further improve efficiency and reduce leakages in public revenue.
Pakistan’s geographical location provides it with an opportunity to become a key trade hub in the region. By capitalising on the China-Pakistan Economic Corridor and other initiatives, the country can enhance connectivity and economic cooperation with neighbouring countries. Developing modern infrastructure, including ports, highways and logistics networks, will be essential for facilitating international trade and attracting global businesses.
Pakistan’s economic outlook reflects a mix of progress and challenges. While key sectors have shown resilience, achieving sustainable growth will require strategic reforms and continued investment in industrial and technological advancements. The Uraan Pakistan initiative and targeted policy measures provide a roadmap for economic transformation. By fostering strategic partnerships, enhancing export competitiveness and ensuring macroeconomic stability, Pakistan can steer the complexity of the global economy and achieve long-term prosperity.
The government’s commitment to addressing structural ineptitude, investing in key industries and maintaining fiscal discipline will be imperative in ensuring that economic growth remains inclusive and sustainable. With a clear vision and consistent implementation of reforms, Pakistan is well-positioned to strengthen its economic standing and secure a prosperous future.
Dr Ikramul Haq, writer and an advocate of the Supreme Court, is an adjunct teacher at Lahore University of Management Sciences.
Abdul Rauf Shakoori is a corporate lawyer based in the USA
