The Heritage Institute’s Index of Economic Freedom has labeled Pakistan as a “repressed” economy, ranking it 150th out of 184 economies with a score of 49.1 out of 100 for 2025. This index evaluates 12 economic freedoms, including property rights, government integrity, tax burden, and more, seen as crucial for sustainable economic growth. The report highlights challenges in economic reform, public finance management, corruption affecting property rights, and stagnant labor markets in Pakistan.
The report criticizes the government’s limited commitment to necessary economic reforms, citing resistance to modernizing economic structures and political interference in the judiciary. It notes a lack of improvement in the entrepreneurial environment, private-sector dynamism, and high inflation disrupting monetary stability. The workforce, largely underemployed in the informal sector, faces economic challenges.
The Index’s data cutoff for 2025 was June 2024, reflecting issues like high inflation and perceived reform commitment deficiencies. However, the report’s high scores for government spending and tax burden are debated. While Pakistan’s government spending and tax-to-GDP ratio seem reasonable, factors like interest payments and defense spending impact the relevance of these scores. The report questions the actual economic freedom implications of these numbers.
Looking ahead to 2026, concerns arise over increased tax burdens in Pakistan. The top marginal tax rate on individual incomes has risen to 45%, with a super tax on corporate incomes exceeding 50%. These tax hikes have significantly impacted taxpayers and large corporations. The evolving economic landscape prompts anticipation for the next Index of Economic Freedom’s assessment of Pakistan’s economic freedom.
