KARACHI: Pakistani economists and business leaders urged the government on Wednesday to cut high production costs, arrest inflation and increase exports to capitalize on macroeconomic gains in 2025 as the country prepared to ring in the new year.

Prime Minister Shehbaz Sharif this week highlighted his government’s economic achievements over the past two years, saying that inflation had fallen from 29.2% to 4.5%, while foreign exchange reserves had more than doubled from $9.2 billion to $21.2 billion.

While Pakistan reported some economic gains during the year, such as comparatively low inflation, a $100 million current account surplus in November and a strong performance by the stock market, economist Sana Tawfik said deeper reforms were still needed to address pressing economic issues.

“When we talk about stability and growth, we cannot deny that there are challenges in the economy,” Tawfik, head of research at Arif Habib Limited, told Arab News. “High energy tariffs, interest rates and the broader cost of doing business need to be addressed if Pakistan wants to sustain growth, boost exports and attract foreign investment.”

Pakistan reported consumer inflation at 6.1% in November, saying it was projected to remain within the moderate 5.5-6.5% range in December.

Muhammad Rehan Hanif, president of the Karachi Chamber of Commerce and Industry (KCCI), agreed that high power tariffs were eroding the effectiveness of Pakistan’s exports.

“Our interest rate is still 10.5%, while the region is at six or seven percent,” Hanif lamented. “[While] electricity costs around 12 cents per unit here, compared to about nine cents in Bangladesh.”

The KCCI president also pointed to the country’s poor infrastructure, particularly that of its commercial capital Karachi, as a major challenge for the year ahead.

He said dilapidated roads, poor drainage and poor industrial conditions were damaging Pakistan’s image for visiting buyers and diplomats, discouraging investment.

“Infrastructure is the biggest challenge the industrialists in Karachi are facing,” he explained.

‘EXPORTS ARE OUR LIFELINE’

More troubling for Pakistan is the fact that foreign direct investment (FDI) inflows fell by more than 25% to $927 million during the July-November period, as per data from the central bank. Pakistan’s FDI inflows have never surged beyond $3 billion in nearly 20 years.

Economists say high energy costs along with interest and taxation rates are responsible for low FDI in the country.

Hanif stressed the importance of increasing Pakistan’s exports to ensure macroeconomic gains in 2026.

“Exports are our lifeline,” he said. “When 7 to 8 million Pakistanis abroad can generate $37 billion [in remittances], why are 250 million people here exporting only $32 billion?“

Tawfik agreed, saying that shifting to an export-driven economic model was essential for long-term sustainability.

“It is about time that we move from an import-driven economy to an export-driven one,” she said, adding that macroeconomic stability was a prerequisite for restoring investor confidence and attracting FDI.

Meeting the International Monetary Fund’s benchmarks, ensuring timely inflows from creditors and continuing reforms such as privatization of state-owned enterprises (SOEs) will also be critical in 2026, she added.

‘YEAR OF MACROECONOMIC STABILITY’

Despite these challenges, financial experts recognized that 2025 marked a clear improvement for Pakistan compared to the previous two years.

“The year 2025 can be described as a year of macroeconomic stability and overall, we saw some improvement in different macroeconomic indicators,” Tawfik said.

She noted that inflation, which had surged to a record 38 percent in May 2023, had been reduced to single-digit figures in 2025.

Pakistan’s Finance Adviser Khurram Schehzad said this week the Pakistan Stock Exchange has delivered 50 percent-plus returns in US dollar terms since January 2025, making it one of the “best markets in Asia.”

Tawfik said 2026 could see “positive” developments if the government maintains macroeconomic stability.

The economist said she expected growth at around 3.7%, inflation to remain within the central bank’s five to seven percent target range and a relatively stable exchange rate with modest depreciation.

However, she cautioned that without addressing high energy costs, easing business conditions and boosting exports, the government could risk squandering its hard-won macroeconomic gains.

“It is important to take all stakeholders on the same page and work in the same direction for overall economic betterment.”