The year ahead holds cautious optimism for Pakistan’s economy, contingent on the absence of major internal or external shocks. The recovery remains fragile, with citizens and businesses stretched to their limits. Any policy missteps or an escalation in global conflicts affecting commodity prices, oil markets, or trade routes could swiftly erode the hard-earned gains of 2024.

Major global development partners have upgraded Pakistan’s GDP growth forecasts, with the International Monetary Fund (IMF) raising its projection to 3.2 per cent from 2.4pc and the Asian Development Bank to 3pc growth in 2025. Both institutions attribute the improved outlook to enhanced macroeconomic stability following Pakistan’s entry into the IMF programme.

Industrial activity is expected to gain momentum, but a robust recovery depends on the government’s commitment and ability to steer the economy towards inclusive growth and reorient towards manufacturing from trade. This requires fostering an environment where entrepreneurs are confident in making long-term investments and are equipped to compete locally and globally on the strength of productivity and innovation, without relying on sovereign profit guarantees.

An informal survey involving interviews with diverse stakeholders painted a grim outlook for significant fresh investments, citing idle capacity across many industrial sectors and policy inconsistency as key factors.

‘The IPP renegotiations could serve as a catalyst for businesses to reduce reliance on government guarantees and subsidies’

Additionally, the renegotiation of deals with independent power producers (IPPs) in 2024 is believed to have dampened enthusiasm for public-private partnerships in the country. Stakeholders also underscored the urgent need to address internet service challenges to foster information technology or IT-related businesses and unlock their export potential.

The Asian Development Bank, however, forecasts a rebound in private investment for 2025, citing three drivers: the lifting of import restrictions, strengthening of investor confidence, and improved access to foreign exchange.

The IMF projects Pakistan’s investment rate to increase by one percentage point, increasing from 11.7pc of GDP in 2024 to 12.7pc in 2025.

Khurram Shahzad, advisor to the finance minister, predicts a strong industrial recovery in 2025 but refrains from specifying the projected growth rate. He identifies reduced capital costs, driven by interest rate cuts and lower energy expenses due to declining oil prices as primary growth stimulators.

“The Federal Board of Revenue’s digitisation initiative to broaden the tax base is expected to ease the tax burden on current taxpayers. These measures are likely to attract new investments, stimulate demand and accelerate industrial production,” Mr Shahzad remarked.

The easing of inflation and monetary policy is expected to boost consumer and producer spending in Pakistan, particularly in housing and commercial real estate. This recovery could revitalise the construction sector, which, in turn, would stimulate its 40 allied industries, known for their significant job creation potential.

Investment opportunities are reportedly expanding in sectors such as energy, automotive manufacturing, pharmaceuticals, mining, and IT. The energy sector is witnessing a strategic pivot from imported to local coal in thermal power projects. In the automotive manufacturing industry, Chinese electric vehicle giant BYD is reportedly planning to establish an assembly plant near Karachi by 2026.

The pharmaceutical industry is also gaining traction, with Haleon Pakistan preparing to produce Centrum and other multivitamins locally for domestic and export markets. Furthermore, progress is anticipated next year in the Reko Diq copper and gold mining project.

Ehsan Malik, CEO of the Pakistan Business Council, anticipates moderate industrial progress in 2025 and urges the government to prioritise agriculture and IT-enabled sectors to improve the trade balance. While he foresees broad-based improvement, Mr Malik warns against repeating past mistakes where initial stability under the IMF programme was undermined by import-led growth.

He stresses the importance of targeted policies beyond monetary measures to ensure sustainable economic growth, particularly given the transient nature of current commodity price advantages.

Abdul Aleem, Secretary General, Overseas Investors Chamber of Commerce and Industry (OICCI), views industrial recovery in 2025 as contingent on structural reforms and policy consistency. While global recovery and monetary easing present opportunities for growth in construction and manufacturing, he highlights persistent challenges such as high energy costs, complex taxation, illicit trade, and inadequate protection of intellectual property rights that continue to constrain industrial progress.

Many business executives, including Mr Malik, have criticised the government’s extrajudicial approach to renegotiating IPP contracts, arguing that sweeping allegations of malpractice have eroded private sector confidence in public-private partnerships. However, he suggests that this experience could serve as a catalyst for businesses and banks to adopt more robust risk management practices, reducing reliance on government guarantees and subsidies.

Mr Shahzad disputed claims that renegotiated deals with IPPs have dampened business sentiments. “In our view, if the private sector were truly dissatisfied, Engro would not have invested half a billion dollars in Jazz, nor would we have seen recent improvements in foreign direct investment [FDI].”

He emphasised that ongoing reforms in state-owned entities (SOEs), right-sizing, privatisation, pensions, energy, taxation, and other fiscal areas are pivotal for sustainable recovery. “By prioritising export-led growth over export-led strategies, these measures will solidify stability and attract long-term investments,” he stated.

Gohar Eijaz, former federal minister, dismissed the perception of widespread discontent in the private sector over new IPP agreements. “Like everyone else who cares, the business community is generally pleased that this daylight robbery of capacity payments is finally coming to an end. The forty ultra-wealthy families who own IPP are unhappy because they were earning exorbitant profits without generating electricity or investing equity in the projects. They were forced to settle under revised deals with the task force, agreeing to payments based on electricity supply, with the condition that they would not be subjected to a forensic audit of past years.”

Published in Dawn, The Business and Finance Weekly, December 30th, 2024