Pakistan’s growth failure is often explained away through familiar clichés: low productivity, weak exports, lack of innovation or insufficient entrepreneurship. These are symptoms, not causes. The real problem lies deeper: in a state-created cost structure that has made doing business prohibitively expensive and structurally irrational.
A recent analysis of the private sector reported by Nikkei Asia has now quantified what companies have been saying for years: running a business in Pakistan is 34% more expensive than in comparable South Asian economies. The single statistic is not just an indictment of politics; it is a post mortem of Pakistan’s growth model.
According to the survey conducted by the Pakistan Business Forum (PBF), the excess costs are not random or cyclical. It is structural, cumulative and politically induced. Fuel taxes, electricity prices, interest rates, currency depreciation and an extraordinarily effective tax burden combine to form a lethal cocktail that prices domestic industry out of both regional and global markets. This is not capitalism failing. It is the state that is failing the economy.
PBF’s findings, based on industrial data up to December 2025, reveal a simple but devastating reality. Pakistan’s companies operate under energy and tax costs that no competitor in the region is forced to bear.
Electricity prices average Rs 34 per unit, while the regional average is around Rs 17. Fuel is burdened with an additional petroleum tax of around Rs 80 per litre, turning energy not into an input but into a fiscal extraction mechanism.
Interest rates remain at 12.5%, almost double the rates of neighboring economies, where capital is treated as a facilitator of growth rather than a source of income. Top this with a currency that collapsed from Rs 110 per dollar in 2018 to around Rs 280 by December 2025, and imported inputs — raw materials, machinery, intermediate goods — become prohibitively expensive. To call this a “challenging business environment” is an understatement. It is a manipulated disadvantage.
Most alarming is the effective tax burden, which PBF estimates can reach up to 55% for companies, far above regional norms. This is not taxation in the classical sense of financing public goods. It is fiscal overreach that systematically cannibalizes investable surplus.
One of the most revealing aspects of the Nikkei-reported data is not about companies, but about people. Gallup Pakistan shows that paid employment now accounts for 60.1% of the workforce, up from 53.4% in FY2010-11, while self-employment has fallen from 24.4% to 21.8% over the same period.
This shift is often misunderstood as modernization. It isn’t. In the context of Pakistan, it reflects risk aversion induced by a hostile business climate. When the costs of compliance, energy, financing, and taxation overwhelm potential returns, rational individuals choose employment over enterprise. This is a political result.
A young business graduate in Islamabad, quoted by Nikkei, abandoned plans to open a restaurant after being “pursued by so many government departments”. His experience is systemic. The government’s obsession with licensing, regulatory fragmentation and compliance fetishes raise fixed costs to levels that wipe out small and medium-sized businesses before they are born.
Data on labor force distribution over nearly three decades reveal a quiet but profound structural shift in Pakistan’s economy. In 1996-97, self-employment accounted for about 28% of the labor force, along with a significant share of contributing family and unpaid labor—categories that traditionally reflect activities in small businesses, family businesses, and informal entrepreneurship. In 2010-11, self-employment had already fallen to 24.4%, while salaried employment rose sharply.
The latest figures for 2024-25 complete this transformation: over 60% of the workforce is now paid, while self-employment has fallen further to just 21.8% and unpaid family work to around 14%. This is not a benign modernization trend. In Pakistan’s context, it signals the systematic erosion of the entrepreneurial space, where rising energy costs, punitive taxation, regulatory harassment and expensive credit have made independent business activity economically irrational.
Instead of creating a dynamic class of risk-taking entrepreneurs, Pakistan’s political environment is steadily turning potential job creators into job seekers—an outcome fundamentally incompatible with sustained growth, export expansion, and productivity-led development.
Bilal Ghani of Gallup Pakistan correctly identifies another structural distortion: Pakistan’s trade and industrial policies systematically restrict access to cheaper foreign raw materials to protect domestic producers. This is import substitution without competitiveness, protection without productivity.
Instead of integrating Pakistani companies into global value chains, the policy forces them to rely on more expensive domestic raw materials, increasing production costs without any gains in quality or scale. The result is a manufacturing sector that is both protected and uncompetitive—a contradiction that no economy can sustain.
Add to this Pakistan’s perception as a high-risk jurisdiction – due to terrorism, money laundering concerns and geopolitical tensions – and companies face layers of due diligence, certification and compliance costs unknown to competitors in other developing economies. These non-tariff costs disproportionately penalize exporters and technology companies, the very sectors Pakistan claims it wants to promote.
The impact on exports is both severe and predictable. Pakistan’s export performance has stagnated since 2021, with particularly damaging consequences for textiles, which still account for around 60% of total exports. Hundreds of medium-sized textile companies have closed down in recent years, as noted by PBF chief organizer Ahmed Jawad. This breakdown is not the result of inefficiency alone. When electricity costs are double those of competitors, when financing costs are punishing, and when regional trade deals – such as the EU-India arrangement – tilt the playing field further, survival itself becomes uncertain. Pakistan’s exporters are not losing markets because they are incompetent; they are priced by their own state.
At the root lies a deeper contradiction: the state has converted energy prices and taxation into instruments for short-term fiscal stabilization and ignores their long-term growth consequences. Petroleum taxes replace structural tax reforms. Electricity tariffs close budget holes created by inefficiencies elsewhere. High interest rates compensate for fiscal indiscipline. This is a survival strategy – and a deeply flawed one.
By extracting maximum revenue from a shrinking formal sector, the state accelerates informality, discourages investment and erodes the tax base it seeks to protect. The result is a vicious circle: higher taxes to cover declining revenues, higher costs to maintain inefficient systems, and lower growth to justify further extraction.
Last December, PBF wrote to Prime Minister Shehbaz Sharif calling for regionally competitive electricity prices and more rational corporate taxation. These requirements are prerequisites for survival.
Pakistan must unlearn three dangerous assumptions. First, that energy can be priced as a fiscal tool without destroying the industry. Second, that companies will continue to operate regardless of cost asymmetries. Third, that entrepreneurship can flourish under regulatory hostility and economic oppression.
Growth does not happen in political speeches or five-year plans. It occurs where the cost of risk is lower than the reward. Pakistan has turned this equation on its head.
The data reported by Nikkei Asia doesn’t just diagnose a problem; it forces a choice. Pakistan can continue to tax, tariff and regulate its way into stagnation, or it can adjust its tax, energy and regulatory architecture towards competitiveness.
High taxes and expensive energy are not neutral political instruments. In Pakistan’s case, they have become anti-growth weapons, quietly dismantling entrepreneurship, eroding exports and turning a nation of potential producers into reluctant employees. Until this reality is acknowledged and addressed, no amount of rhetoric about investment, exports or innovation will revive Pakistan’s growth model. The math is unforgivable and the evidence is now indisputable.
The author is an advocate for the Supreme Court and specializes in studying the global drug arms economy and its links to terrorism.
Disclaimer: The views expressed in this piece are the author’s own and do not necessarily reflect Pakinomist.tv’s editorial policy.
Originally published in The News
