Pakistan's economic trap: Investment barriers stifle growth and prosperity

Islamabad [Pakistan], November 11 : Pakistan's economic stagnation continues to deepen as the country ranks 136 out of 167 nations in the Legatum Prosperity Index 2023, highlighting chronic weaknesses in investment and enterprise conditions. Pakistan's dismal performance across multiple indicators highlights deep-rooted structural flaws that continue to discourage domestic and foreign investors, as reported by The Express Tribune.

According to The Express Tribune, while Pakistan secured the 96th position in Investment Environment and 102nd in Enterprise Conditions, these figures reflect persistent barriers to industrial expansion and business growth.

The Legatum Index also places Pakistan at 129th in Economic Quality, signalling poor productivity and limited export diversification, symptoms of an economy still reliant on low-value goods.

Experts note that one of the primary obstacles to sustained growth is the low investment-to-GDP ratio, which stood at 12.9 per cent in 2024. By comparison, regional peers such as Bangladesh and Vietnam maintain rates of around 30 per cent, highlighting the extent of Pakistan's underperformance. Foreign Direct Investment (FDI) paints a similarly bleak picture, with inflows at a meagre 0.7 per cent of GDP, compared to Vietnam's 4.3 per cent.

Two major structural impediments: an extractive tax system and a complex regulatory framework. Over 100 regulatory bodies operate at the federal level, forcing businesses to navigate multiple, overlapping requirements.

The Competition Commission of Pakistan (CCP) has also highlighted more than 50 laws governing manufacturing, enforced by over 40 agencies, which creates an administrative nightmare for entrepreneurs. Additionally, Pakistan's tax regime remains one of the most burdensome in the region, with a 29 per cent corporate tax rate and multiple levies pushing effective rates near 50 per cent. Companies must file dozens of returns annually, consuming valuable time and resources, as cited by The Express Tribune.

Economists warn that unless Pakistan simplifies regulations, rationalises taxes, and reduces government intervention, which currently affects over 67 per cent of GDP, the investment climate will continue to worsen.

Pakistan's growth potential hinges on meaningful reforms to break free from its cycle of overregulation, fiscal distortion, and policy inconsistency that continue to suffocate enterprise and innovation, as reported by The Express Tribune.

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