Pakistan’s economic growth challenges are not due to low productivity or lack of innovation but stem from the costly business environment shaped by government policies, as per a recent analysis. The Pakistan Business Forum’s study, as reported by The News International, reveals that operating a business in Pakistan is 34% more expensive compared to similar South Asian economies. This cost burden is attributed to high energy prices, heavy taxation, expensive loans, and currency devaluation, creating a structural issue for businesses.
The study highlights that Pakistan’s electricity tariffs are almost double the regional average at around Rs34 per unit. Additionally, fuel prices are inflated by a petroleum levy of about Rs80 per litre, while interest rates remain high at 12.5%, increasing borrowing costs for enterprises. The depreciation of the Pakistani rupee from Rs 110 per dollar in 2018 to about Rs 280 by December 2025 has further escalated the prices of imported raw materials and machinery, impacting businesses.
Businesses in Pakistan face an effective tax burden that can soar up to 55%, significantly surpassing regional standards. This heavy taxation reduces funds available for reinvestment and expansion, hampering growth prospects. The workforce landscape in the country is also evolving, with Gallup Pakistan data indicating a shift towards salaried employment, which now constitutes over 60% of the workforce, up from around 53% a decade ago. Conversely, self-employment has declined, reflecting risk aversion due to high costs and regulatory complexities that deter entrepreneurship.
Entrepreneurs have raised concerns about the intricate licensing regulations and bureaucratic hurdles that escalate compliance expenses. A young graduate mentioned in the Nikkei report abandoned plans to open a restaurant due to excessive regulatory demands. Experts point out that trade and industrial policies in Pakistan, aimed at shielding domestic producers, inadvertently inflate production costs without enhancing competitiveness. This protectionist stance, while safeguarding local manufacturers, hampers their ability to compete globally.
