Next crisis is growth, not dollars

The pattern became painfully familiar. Foreign-exchange reserves fell, the rupee came under pressure, inflation accelerated, imports were squeezed, and the government returned to the International Monetary Fund (IMF) for assistance. A period of austerity would follow, the economy would stabilise, and eventually the cycle would begin again.

But Pakistan enters the second half of 2026 in a different position. The economy has stabilised. The fiscal position has improved, inflation is far more contained than during the recent crisis, foreign-exchange reserves have been rebuilt, and the IMF has acknowledged strong implementation of the current reform programme. These are significant achievements, not to be dismissed. However, it raises a more difficult question. What happens after stabilisation?

Pakistan has become considerably better at preventing economic collapse. It, however, has yet to demonstrate that it can generate the sustained, investment-led and export-oriented growth needed to become a genuinely prosperous economy. That may be the defining economic challenge of the next decade. There is a temptation to view economic stabilisation as the end of the crisis. Unfortunately, this does not seem to be the case. This is the success that creates a new problem.

The latest data show a striking improvement in Pakistan’s external position. During July-March of FY2026, the country recorded a current-account surplus of $72 million, while remittances reached $41.6 billion during the fiscal year. Foreign-exchange reserves held by the State Bank of Pakistan stood at $17.1 billion by May 15, with total reserves including commercial banks at $22.6 billion. The IMF has also reported that GDP growth accelerated, inflation remained contained, and reserve rebuilding exceeded earlier projections. This is precisely what a stabilisation programme is supposed to achieve.

Pakistan now faces the harder phase. It must turn stability into growth. And that is considerably more difficult than preventing the next balance-of-payments crisis. Pakistan does not simply need positive growth. It needs high-quality growth at a sustained rate. An economy of Pakistan’s size and demographic structure cannot comfortably rely on mediocre growth for decades. Millions of young people enter the labour force, while the state needs more revenue to finance education, healthcare, infrastructure and social protection.

Growth of around 3-4% may keep the economy moving, but it is unlikely to transform living standards rapidly enough. More importantly, Pakistan has historically faced a peculiar problem that whenever growth accelerates, imports often accelerate with it. This results in a familiar sequence; faster growth, a wider external deficit, pressure on the rupee, declining reserves and eventually another stabilisation programme.

This is the central economic paradox. Pakistan does not merely need faster growth. It needs a different kind of growth. The next expansion must generate enough exports, investment and productivity to finance itself. The following are a few of the considerations in this context. The lacklustre exports are where Pakistan’s economic model faces perhaps its greatest weakness. According to the Pakistan Economic Survey, goods exports during July-March FY2026 were $22.7 billion, while imports were $50.7 billion. The numbers reveal the structural problem. Pakistan continues to consume and invest on a scale that requires far more foreign exchange than its goods exports generate. Remittances bridge part of that gap. External financing bridges another part. But neither is a substitute for a competitive export economy.

The question is not simply why Pakistan imports so much, but rather why the country has failed to export dramatically more. Reducing imports can temporarily improve the balance of payments. But suppressing imports also suppresses investment, consumption and growth. Increasing exports is different. It allows the economy to grow while earning the foreign exchange needed to finance that growth. That is why Pakistan’s long-term economic strategy must move from managing scarcity to building competitiveness.

There is another remarkable feature of Pakistan’s current economy: the growing importance of overseas Pakistanis. Remittances of $41.6 billion in FY2026 have become one of the most important sources of foreign exchange and strength. But there is a paradox as well. A country becomes truly prosperous when it exports products, services, technology and capital, rather than primarily exporting its people. Pakistan should therefore ask a difficult question; why should a talented young Pakistani need to leave the country to earn a globally competitive income?

The answer points directly towards the next economic frontiers of information technology, professional services, engineering, digital commerce and other internationally tradable services. The challenge is creating the infrastructure, education, regulation, financial systems and business environment that allow that talent to earn globally while remaining economically connected to Pakistan.

Moving on, no discussion of growth problem can avoid energy. For businesses, unpredictable or expensive electricity and gas are not merely inconveniences. They directly affect competitiveness. The country needs an energy system that is financially sustainable, reliable and competitive for productive businesses. That means confronting politically uncomfortable questions about tariffs, subsidies, distribution losses and state-owned entities.

Economic transformation rarely comes from a single spectacular policy. It comes from solving dozens of unglamorous problems that make it easier for a company to invest, produce and export. The reform agenda should therefore be judged against a simple test, ie, does it make Pakistan more productive and more competitive? Tax reform should broaden the tax base rather than continually increasing the burden on the already documented economy. Energy reform should lower the cost and improve the reliability of production. State-owned-enterprise reform should reduce the burden on taxpayers and improve service delivery. Education spending should create workers capable of competing in higher-value industries. Regulatory reform should make it easier, not harder, to establish and expand businesses. And trade policy should encourage firms to compete internationally rather than permanently sheltering them behind domestic protection.

Pakistan has already shown that it can survive. It has shown that difficult fiscal and monetary adjustments can restore stability. It has demonstrated that reserves can be rebuilt and that external confidence can return. The next test, however, is much harder. Can it create an economy in which businesses invest because they expect to become more competitive? Can its exporters penetrate new markets? Can its young population find productive employment at home? Can the country move from exporting labour to exporting technology and services? Can faster growth occur without immediately creating another foreign-exchange crisis? The country has spent years learning how to avoid collapse. The next decade must be about learning how to grow.

THE WRITER IS AN INTERNATIONAL ECONOMIST