Pakistan’s Economic Paradox: Liquid Banks, Stable Forex, Yet No Growth?

Pakistan’s economy presents a perplexing paradox. Despite some seemingly positive indicators – such as a banking sector awash with liquidity, a stable foreign exchange market consistently bolstered by remittances, and a notable surge in currency circulation (an impressive Rs 432 billion increase from July to December 2025) – the nation’s economic engine remains stubbornly stagnant. A recent report pinpoints the core issue: a crippling lack of certainty across its fiscal, legal, strategic, and administrative frameworks.

It’s a head-scratcher, isn’t it? On one hand, there’s money available in banks. The rupee isn’t spiraling out of control thanks to hardworking overseas Pakistanis. And more cash is actively circulating within the economy. So, why isn’t this translating into vibrant economic activity and growth?

The answer, according to the report, lies in the deep-seated unpredictability and pervasive uncertainty. This environment, characterized by inconsistent policies and a lack of clear direction, acts as a heavy anchor, preventing any real economic momentum from taking hold. Businesses and investors thrive on predictability, and when that’s absent, caution takes over.

The economic repercussions of this policy paralysis are stark and alarming, painting a grim picture of missed opportunities and capital flight:

• Private sector credit saw a staggering year-on-year plunge of 90.8%. This indicates a severe reluctance from businesses to borrow and invest, which directly impacts job creation and expansion.
• Foreign Direct Investment (FDI) took a significant hit, falling by 25.4%. International investors are understandably hesitant to commit capital in an environment where the rules of engagement can change without warning.
• Adding to the woes, net foreign investment dropped by a massive 77.5%, signaling a broader withdrawal of capital and a lack of confidence in Pakistan’s long-term economic prospects.
• Furthermore, the current account, which tracks the nation’s balance of trade, swung back into a deficit, putting additional pressure on external finances and the rupee.

These figures collectively illustrate a critical point: while certain financial metrics might appear healthy on the surface, the fundamental structural issues – particularly the absence of stable governance and predictable policy-making – are actively deterring both domestic and international investment. Until Pakistan can effectively establish and consistently uphold clear, stable, and predictable fiscal, legal, strategic, and administrative frameworks, its economy will likely continue to languish, unable to unlock its true potential and break free from these self-imposed shackles.

Source: Original Article