KARACHI:
Pakistan’s economic landscape has been undergoing significant transformations in recent years, with both challenges and opportunities shaping its trajectory. From monetary policy adjustments to major infrastructure and resource development projects, the country’s financial outlook remains dynamic.
As 2025 unfolds, critical factors such as interest rate cuts, military involvement in economic decision-making, and large-scale projects like Reko Diq and Gwadar continue to influence Pakistan’s business and economic environment. This article explores the latest economic trends, their implications, and the road ahead for Pakistan.
To stimulate economic growth and curb inflation, the State Bank of Pakistan (SBP) has aggressively cut its policy rate. On January 27, 2025, the central bank announced a 100-basis-point reduction, bringing the key policy rate down to 12%. This marks the sixth consecutive reduction since June 2024, as inflation trends downward.
In December 2024, Pakistan recorded an inflation rate of 4.1%, the lowest in over six years. Analysts predict that if inflation remains under control, further rate cuts could be expected in the coming months.
Lower interest rates encourage borrowing and investment, potentially boosting industries such as real estate, manufacturing, and small businesses. However, economic experts caution that the effectiveness of this policy depends on complementary measures such as improved fiscal discipline, stable governance, and external funding to manage the country’s debt burden.
Another significant development is the increasing influence of Pakistan’s military in economic affairs. The Special Investment Facilitation Council (SIFC), co-chaired by Army Chief Asim Munir, has been overseeing key sectors such as agriculture, tourism, and natural resources.
While proponents argue that military involvement has reduced bureaucratic inefficiencies and attracted foreign investment, critics raise concerns about transparency, civilian oversight, and potential long-term implications for democracy.
The military’s role in economic decision-making is not new, but its expansion into mainstream policymaking raises questions about whether it is a sustainable model for long-term economic stability. The success of this approach will largely depend on whether military-led initiatives can deliver tangible economic benefits while maintaining a balance with civilian governance structures.
Gwadar, a key component of the China-Pakistan Economic Corridor (CPEC), was envisioned as a transformative project that would turn Pakistan into a regional trade hub. The city’s strategic location and deep-sea port were expected to attract significant foreign direct investment and enhance Pakistan’s connectivity with global markets. However, Gwadar’s progress has been hampered by security concerns, local unrest, and governance challenges.
Despite infrastructure developments such as a new airport and port expansions, the city has struggled to meet its full potential. Local communities have expressed frustration over the lack of economic benefits reaching them, leading to protests and instability. The Pakistani government and its Chinese partners must address these grievances to ensure the project fulfils its promise.
One of the most promising economic developments in Pakistan is the revival of the Reko Diq copper and gold mining project. The project, a joint venture between Barrick Gold and the Pakistani government, is projected to generate $74 billion in free cash flow over the next 37 years. With production set to commence by the end of 2028, Reko Diq has the potential to significantly boost Pakistan’s foreign exchange reserves and reduce its dependence on imports.
The first phase of the project involves a $5.5 billion investment, aiming to produce 200,000 tonnes of copper annually. The second phase, planned for the next decade, will double production capacity. If successfully implemented, Reko Diq could transform Pakistan’s mineral sector and attract further international investments.
Despite positive economic indicators in certain areas, Pakistan continues to grapple with rising poverty levels. A recent World Bank report indicates that poverty increased from 21.9% in 2018-19 to 25.3% in 2022-23, driven by factors such as the Covid-19 pandemic, inflation, and climate-related disasters. The government must prioritise social protection programmes and inclusive economic policies to alleviate poverty and support vulnerable populations.
The report suggests that with sustained economic recovery, poverty levels could decline to 18.7% by 2025. However, achieving this target requires comprehensive reforms in education, healthcare, and employment generation.
Pakistan’s economic landscape in 2025 is a mix of promising opportunities and persistent challenges. While interest rate cuts and large-scale projects like Reko Diq and Gwadar present avenues for growth, issues such as military involvement in economic governance and rising poverty levels require careful navigation. For Pakistan to achieve sustainable economic growth, policymakers must focus on structural reforms, improving the ease of doing business, and fostering an environment conducive to local and foreign investments. By addressing these key issues, Pakistan can move towards a more stable and prosperous economic future.
THE WRITER IS A MEMBER OF PEC AND HAS A MASTER’S IN ENGINEERING
