By LCCI Senior Vice President Tanveer Ahmed Sheikh
As Senior Vice President of the Lahore Chamber of Commerce and Industry, I have closely observed Pakistan’s economic journey in 2025—a year marked by cautious optimism, visible macroeconomic stabilization, and renewed confidence, but also by persistent structural challenges that demand urgent attention. While we can celebrate the gains made, it is clear that much work remains if Pakistan is to convert stabilization into sustainable growth.
At the start of 2025, Pakistan faced numerous inherited challenges: high inflation, soaring interest rates, dwindling foreign exchange reserves, a credit-starved private sector, and an economy operating largely in survival mode. Yet, over the past twelve months, signs of revival have gradually emerged, signaling a potential turnaround in economic sentiment.
A key pillar of this optimism has been the surge in remittances from overseas Pakistanis. Remittances reached US$ 38.3 billion in FY 2024–25, up 26 percent from the previous year, reflecting growing confidence in the country’s macroeconomic management. These flows are not merely financial—they represent a vote of confidence in Pakistan’s stability and reform path. In just the first five months of FY 2025–26 (July–November), inflows already stand at US$ 16.1 billion, up 9 percent from the same period last year. This shift from informal to formal channels also reflects improved compliance mechanisms and market clarity.
Inflation, a longstanding concern for households and industries, has finally eased significantly. Average annual inflation fell to 4.5 percent in FY 2024–25, compared to 23.4 percent the previous year. This reduction has directly strengthened purchasing power, revived retail demand, and relieved the working capital pressures of businesses, enabling industries to better plan production and expansion. It also reflects the effectiveness of prudent fiscal and monetary measures in stabilizing the economy after one of the harshest inflationary cycles in Pakistan’s history.
The stock market has mirrored this renewed confidence. The KSE-100 Index crossed 170,000 points, a remarkable 60 percent growth in market capitalization compared to a year ago. Investors, industrial groups, banks, and business communities are repositioning for growth, reflecting broader optimism about Pakistan’s economic trajectory.
Foreign exchange reserves also tell a story of recovery. Reserves have risen to US$ 21 billion, up from US$ 15.9 billion in December 2024, marking nearly a 32 percent improvement. Coupled with the timely release of a US$ 1.2 billion tranche from the International Monetary Fund in December 2025, this shows renewed international confidence in Pakistan’s reform trajectory. Such developments must be protected with consistent policy and institutional continuity to maintain momentum.
Interest rate reductions have played a pivotal role in enabling private-sector revival. A policy rate decline from 22 percent to 10.5 percent has reduced borrowing costs, encouraging investment, expansion, and growth in small and medium enterprises (SMEs). High financing costs in prior years had frozen industrial expansion, curtailed SME activity, and hindered job creation. With lower rates, a new cycle of productive investment can begin—provided that reforms continue, energy costs are addressed, and business confidence remains high.
The IT sector, often described as Pakistan’s “sunrise industry,” has continued to show remarkable resilience. Exports from the sector increased 19 percent in the first five months of FY 2025–26, reaching US$ 1.8 billion. This growth highlights the potential of Pakistan’s digital economy as a foreign exchange generator and a global service provider. To sustain this momentum, the government must continue supporting freelancers, reform tech export taxation, and upgrade digital infrastructure to attract international clients and investors.
Policy measures taken in 2025 have also contributed to stability and reform. The abolition of the 0.25 percent export development surcharge and the completion of PIA’s privatization reflect a serious commitment to reducing fiscal burdens and improving economic efficiency. State-owned enterprises have historically drained resources, and minimizing their fiscal footprint is crucial for channeling funds toward development initiatives. Additionally, the launch of the “Uraan Pakistan” five-year economic transformation program in late 2024 signals forward-looking planning. Early results—moderating inflation and stabilizing external accounts—are visible, but sustained execution over the next four years will determine its ultimate success.
Despite these gains, the business community continues to face formidable challenges. Energy costs remain prohibitively high, particularly for manufacturing and export-oriented sectors. In Punjab, this has created a significant cost disadvantage compared to regional competitors. High energy tariffs restrict industrial competitiveness, delay investments, and raise production costs, undermining the economic recovery.
The trade deficit also remains a serious concern. In the first five months of FY 2025–26, it widened to US$ 15.4 billion, up 37 percent from the same period last year. This reflects underlying weaknesses in export fundamentals and highlights the need for a comprehensive export-driven strategy. Pakistan must go beyond mere rhetoric and focus on tangible measures, including industrial zones, enhanced market access, export financing, and competitive tariffs. Without addressing these issues, sustainable economic growth will remain elusive.
Investment inflows, while improving slightly, remain modest. Net foreign direct investment stood at US$ 2.49 billion in FY 2024–25, a marginal increase of just 5 percent from the previous year. Global investors are cautious, waiting for deep, sustained reforms before committing capital. This underscores the need for policy continuity, transparency, and a predictable investment environment.
Equally concerning is Pakistan’s narrow tax base. With fewer than six million taxpayers supporting a population of 240 million, the tax-to-GDP ratio remains stuck at around 10 percent. Without broad-based tax reforms, fiscal sustainability cannot be achieved, no matter how strong remittance inflows or foreign support may be. Institutional efficiency, documentation, and fair tax practices must be prioritized to secure long-term fiscal stability.
As LCCI SVP, I view 2025 as a year of stabilization, where Pakistan stepped back from the brink and reclaimed a measure of economic space. But stabilization alone is insufficient. 2026 must be the year of growth, industrial expansion, investment-led development, and job creation. To achieve this, government priorities should include:
- Immediate reduction of energy tariffs for manufacturing and export-oriented sectors
- Sustaining low interest rates and providing long-term financing solutions
- Broadening the tax base while ensuring fairness and compliance
- Implementing an export-first industrial policy with value-added production and market access
- Ensuring long-term economic reforms are shielded from political volatility
The business community stands ready to invest, create employment, and drive economic growth. What Pakistan needs now is policy continuity, fair governance, and a regulatory environment that facilitates enterprise rather than obstructing it.
The story of 2025 is one of recovery, resilience, and cautious optimism. The story of 2026 must be one of expansion, transformation, and sustainable prosperity. Pakistan has taken its first breath again; it is now time for the nation’s economy to run, to innovate, and to compete on the global stage.
