After a period of intense economic pressure, Pakistan has entered a phase of relative stabilization. Inflation, which peaked at over 30% in 2023, has moderated significantly to around 5.6% . This has allowed the State Bank of Pakistan (SBP) to reverse its tight monetary policy, slashing the policy rate from a crippling 21% to 10.5%, a move designed to stimulate private investment . The central bank is optimistic, forecasting GDP growth for FY26 to land between 3.75% and 4.75%, driven by a broad-based recovery in agriculture and industry .
However, this macroeconomic stability masks significant external fragilities. The country’s current account has swung back into a deficit of $1.07 billion for the first seven months of FY26, reversing a surplus from the same period last year . The primary culprit is a widening goods trade deficit, which ballooned to $18.4 billion as imports surged nearly 10% on recovering domestic demand, while exports saw a slight decline .
Pakistan’s Balance of Trade (Jul-Jan FY26)
| Indicator | Value (Jul-Jan FY26) | Change (YoY) |
|---|---|---|
| Goods Trade Deficit | $18.4 billion | ▲ Widened from $14.1 billion |
| Goods Exports | $18.26 billion | ▼ Slight Decline |
| Goods Imports | $36.66 billion | ▲ ~10% Increase |
| Services Exports | $5.66 billion | ▲ 18.8% Increase (bright spot) |
| Current Account Balance | -$1.07 billion (Deficit) | ▼ Reversed from +$564 million surplus |
While the services sector, particularly IT, continues to grow as a beacon of hope , it is not yet large enough to offset the goods gap. Remittances from overseas Pakistanis have provided a crucial buffer, rising to $23.2 billion, but the overall external account remains under pressure . Furthermore, concerns are mounting over geopolitical risks and a lack of fresh foreign investment, with FDI nearly halving to just $982 million .
The High Cost of Doing Business: A Structural Crisis
The single greatest challenge for businesses in Pakistan is not a lack of ideas or entrepreneurial spirit, but a state-engineered cost structure that makes survival a daily struggle. A recent analysis by the Pakistan Business Forum (PBF) quantified this disadvantage, revealing that operating a business in Pakistan is 34% more expensive than in comparable South Asian economies .
This “lethal cocktail” of costs is policy-induced:
- Energy Costs: Industrial electricity tariffs average Rs34 per unit, roughly double the regional average of Rs17. Fuel is burdened with a heavy petroleum levy, transforming energy from a basic input into a tool for fiscal extraction .
- Cost of Capital: Despite recent cuts, interest rates remain high, stifling the ability of businesses to finance expansion .
- Tax Burden: The effective tax burden can reach up to 55% for companies. Experts describe this not as taxation for public goods, but as “fiscal overreach” that eats away at the capital needed for investment and growth .
- Currency Devaluation: The rupee’s collapse from 110 to the dollar in 2018 to around 280 today has made imported machinery and raw materials prohibitively expensive .
This environment is having a profound effect on the country’s economic DNA. It is systematically discouraging entrepreneurship and risk-taking. Data from Gallup Pakistan shows that salaried employment has risen to 60.1% of the workforce, while self-employment has fallen . This suggests that the hostile business climate is converting potential job creators into job seekers, as the dream of starting a viable enterprise becomes increasingly out of reach .
Sectoral Spotlight: Contrasting Fortunes
Amidst the broader challenges, the performance of individual sectors varies dramatically.
🚀 The Bright Spots: IT and Services
Pakistan’s services sector, particularly IT, is a rare success story. Services exports surged by 31.6% in January 2026 compared to the previous year, reaching $887 million . For the first seven months of FY26, services exports stood at $5.662 billion, an 18.82% increase . Within this, Telecommunications, Computer, and Information Services are the stars, contributing $374 million in January alone and reinforcing Pakistan’s position as a player in the global digital economy . The sector is on track to hit a $5 billion export target for FY26, with particular growth in the Middle East and North Africa region .
⚠️ The Core Under Pressure: Textiles and Manufacturing
In stark contrast, the textile sector, which accounts for roughly 60% of Pakistan’s exports, is fighting for its life. Hundreds of medium-sized textile firms have shut down in recent years, unable to compete with regional rivals [citation][7]. The competitive disadvantages—from power costs to financing—are most brutally felt here. The sector now faces a new threat: potential tariffs from the U.S., its largest market. Industry bodies warn that a 19% reciprocal tariff could slash export volumes by 20-30%, forcing companies to desperately seek alternative markets in the EU, Middle East, and Africa [citation][8].
Large-Scale Manufacturing (LSM) has shown some recovery, growing by 6% in the first five months of FY26 . Other sectors like automobiles are seeing a rebound, with volumes up 48% year-on-year, buoyed by new investments from companies like China’s BYD . The cement sector is also poised for a rebound on the back of expected construction activity . However, these pockets of growth are vulnerable to the same high-cost structure that is crippling textiles.
🌱 The Long View: Agriculture
The agricultural sector has remained resilient despite recent floods and is performing better than its targets, according to the SBP governor . However, its growth remains below 1%, constrained by structural inefficiencies and a lack of modern technology . Long-term plans like flood-resilient agriculture programs are essential but remain in the development phase .
Conclusion: The Path Forward
The business situation in Pakistan in 2026 is one of profound contradiction. On one hand, the economy is more stable than it has been in years. On the other, the very policies that have achieved this stability—high energy tariffs, heavy taxation, and a reliance on external borrowing—are simultaneously pricing the private sector out of existence.
The government has stated its commitment to an “export-led growth strategy” and is taking steps to reduce the cost of doing business, such as rationalizing energy tariffs and abolishing certain surcharges . The SBP is confident that easing financial conditions will fuel growth . The IMF programme provides a necessary, if painful, framework for discipline .
However, experts argue that the country needs to move beyond stabilization to a genuine growth-oriented strategy . This requires a fundamental shift in mindset: treating energy as a facilitator of industry, not a source of revenue; simplifying the tax system to encourage formalization, not punish it; and reducing the regulatory harassment that crushes small businesses before they can start . Until these deep-seated structural issues are addressed, Pakistan’s business environment will remain a place where survival is an achievement, and true potential is left unrealized.