Pakistan’s economy is facing what experts call a “structural crisis,” as the country simultaneously grapples with the brain drain of skilled professionals, the exit of multinational corporations (MNCs), and the flight of local investors.
Data from the State Bank of Pakistan (SBP) reveals that over 75% of fresh banking credit in FY2025 was diverted to government borrowing, leaving the private sector starved of funds. This crowding-out effect, economists warn, has crippled industrial investment, job creation, and innovation.
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The report highlights that Pakistan’s private sector — the main engine of growth and employment — has been pushed to the wall due to high taxation and policy uncertainty.
The salaried middle class, professionals, and small businesses now face tax rates exceeding 35–45%, while real incomes continue to decline.
Private limited companies bear one of the highest effective tax burdens in South Asia once super tax and turnover-based taxes are included. Shamsul Islam Khan, An economist and writer, wrote to a national daily highlighting the issues of banking and economy leading to Brain Drain.
Multinational corporations and local manufacturers are relocating operations to the UAE, Malaysia, Sri Lanka, Egypt, and Bangladesh, where tax structures and energy costs are more competitive.
The Pakistani rupee has lost over 50% of its value in three years, eroding profitability and discouraging foreign investment.
Import restrictions, inconsistent policies, and bureaucratic hurdles have further undermined business confidence. Pakistan continues to rank low on the global Ease of Doing Business index.
Major sectors once driving middle-class growth — including construction, automobiles, textiles, and telecom — are now operating at reduced levels or laying off workers.
Industrial utilisation rates have dropped to 30–50% across FMCG, cement, steel, and automobile industries, while poverty has risen by more than 50% due to job losses and inflation.
The policy rate remains at 11%, yet inflation is rising again alongside a widening trade deficit and limited foreign reserves, signalling deep policy flaws.
Banks are increasingly opting for risk-free profits by lending to the government instead of businesses. As a result, SMEs and exporters are deprived of working capital, leading to what experts term as rapid de-industrialisation.
“When banks lend only to the government, and the government spends mostly on non-productive projects, the outcome is predictable — a collapsing industrial base,” the report notes.
With inflation hovering above 20% for two consecutive years, consumer purchasing power has eroded sharply. Pakistan’s domestic market of 250 million people, once seen as a major investment attraction, is losing relevance as disposable incomes shrink.
Despite the exodus, local firms are stepping into the vacuum left by departing MNCs.
In the FMCG sector, domestic brands are expanding aggressively after P&G’s Gillette exited.
In pharmaceuticals, local companies are replacing foreign manufacturers with affordable generics.
This trend suggests the rise of a “localisation wave”, though experts stress that sustained growth will require tax relief and policy stability.
The report proposes several urgent reforms to restore investor confidence and revive growth:
Broaden the tax base through digitisation and inclusion of the informal sector, while reducing the burden on compliant taxpayers.
Revive private credit by limiting government borrowing from banks.
Redirect spending from political projects to productive, job-creating ventures.
Offer time-bound incentives for export-oriented sectors such as EVs, solar manufacturing, and agro-processing.
Without an investment-led growth model, experts warn, Pakistan risks prolonged economic stagnation and social instability.
