Dr Kamal Monnoo hit the nail on the head back in August 2024 when he wrote his now-famous column in The Nation. He warned that Pakistan’s economy was stuck in a banking-led contraction mode that was squeezing the life out of growth and jobs. Fast-forward to March 2026, and the frustration he described has only grown. Inflation has cooled to around 4.5–6%, reserves are healthier, and the State Bank talks of 3.75–4.75% GDP growth this fiscal year. Yet the common man still feels the pinch. Youth unemployment hovers near 11.5%, exports are stuttering, and every new job-seeker in Lahore or Karachi wonders why the “recovery” never reaches their doorstep. It’s time we stopped tweaking the old model and started re-thinking the entire playbook.
The Banking Trap: Stability at the Cost of Growth
Monnoo nailed the core problem: when banks call the shots, stability becomes an obsession with contraction. Their job is to protect deposits and recover loans, so they naturally favour high interest rates and tight credit. That approach saved us from default in 2023, no question. But keep it going too long and you choke the very engine that creates revenue and jobs.
Think of it like putting your car in neutral on a steep hill to save fuel. You might feel safe for a minute, but eventually gravity wins. Pakistan’s policy rate sat at 22% not long ago. Even after 1,150 basis points of cuts, it’s still 10.5%. Private-sector credit finally ticked up in late 2025, yet small manufacturers in Faisalabad and Sialkot still complain they can’t get working capital without jumping through hoops. The result? A vicious cycle where higher taxes on a shrinking base yield diminishing returns. We’ve seen this movie before, and the ending is never pretty.
Lessons from History: Booms That Defied the Rulebook
History loves to remind us that contraction is only half the story. The greatest US economic boom came during World War II mobilisation. Households didn’t starve; civilian demand actually spilled over from war production. Germany in the 1930s saw similar magic when war prep created jobs and output. Even Donald Trump’s tax cuts and industry protection in his first term delivered record Treasury revenues by expanding the pie rather than fighting over crumbs.
Pakistan sits at its own crossroads today. With 65% of our population under 35 and 3.5 million young people entering the workforce every year, we cannot afford another decade of “stabilisation only.” Monnoo is right—economic managers are still chasing aggressive revenue targets and propping up loss-making public entities instead of fixing the real distortions. Rent-seeking, smuggling, tax evasion, and corruption are sucking the oxygen out of honest businesses. The state needs to exit sectors it has no business running, from loss-making airlines to inefficient power distribution companies that bleed billions annually.
Pakistan’s Demographic Time Bomb: Youth or Unrest?
Walk through any mohalla in Lahore’s working-class neighbourhoods and you’ll hear the same story. A bright 24-year-old textile engineer with a degree from UET is driving Uber because the factory that promised him a job two years ago is still waiting for affordable credit. His father, a retired clerk, jokes bitterly that the only growth industry is “waiting for better days.”
That frustration is the real risk Monnoo highlighted. A cash-starved family with no hope is a powder keg. We have the youngest population in South Asia. Turn that into a demographic dividend and we could rival Bangladesh’s earlier miracle. Ignore it, and social unrest becomes inevitable. The choice is ours, but the clock is ticking loudly.
Global Shifts: Why the Growth Narrative Matters More Than Ever
The world has moved on from the old “fixed pie” economics. Productive potential is no longer seen as limited. Milton Friedman’s three-tier model—sustainable, ethical, and equitable growth—now pairs beautifully with AI, IT, and scientific breakthroughs. China didn’t become the factory of the world by keeping interest rates sky-high and credit tight. It unleashed private enterprise inside a regulated framework and rode the innovation wave.
New data from Chicago Booth researchers backs this up: booms and growth actually enhance productivity by sparking opportunities and innovation. When entrepreneurs see demand, they invest in better machines, train workers, and experiment. Bangladesh proved the point for 15 years until recent stumbles. Their garment sector exploded because policymakers focused on market access and skills rather than endless austerity. Pakistan’s textile industry—still our biggest export earner—could do the same if we stopped treating it like a cash cow to be milked and started nurturing it like the national asset it is.
The Inflation Myth That Refuses to Die
Remember the mid-2010s mantra that unemployment below 4.5% would automatically trigger runaway inflation? Developed economies have disproven that theory repeatedly in the 21st century. Today’s inflation is far more about supply-chain shocks, global commodity swings, and geopolitical disruptions than about too many people having jobs.
Pakistan’s inflation dropped from 23.4% in FY24 to 4.5% in FY25. The sky didn’t fall when we eased rates. In fact, private credit is finally stirring. The real danger now is not inflation but stagnation. A policy rate that stays too high for too long simply transfers money from productive businesses to banks and the government’s debt servicing bill. That’s not economics; that’s robbing Peter to pay Paul.
Fixing Governance: The Real Elephant in the Room
Monnoo didn’t mince words: we must tackle market distortions head-on. Smuggling costs us billions every year—think diesel, electronics, even basic consumer goods. Tax evasion remains systemic. Nepotism in public contracts and unfair business practices keep genuine entrepreneurs on the sidelines. The state’s presence in non-strategic sectors crowds out private investment.
Here’s a quick comparison that hurts:
Current Model vs Needed Model
- Focus — Stability through contraction | Sustainable expansion
- Interest rates — High to protect banks | Moderate to spur investment
- Private credit — Restricted | Actively encouraged
- State role — Dominant in many sectors | Facilitator and regulator only
- Tax approach — Aggressive collection on narrow base | Broaden base, lower rates, grow pie
- Outcome for youth — Frustration and migration | Jobs and hope
The pros of the current stabilisation model are clear: we avoided default, reserves are rebuilding, and inflation is tamed. The cons? Stunted industrial revival, youth despair, and repeated IMF visits (this is our 25th programme, after all). A re-thought model flips the script: use the hard-won stability as a launchpad for genuine growth.
Unleashing the Private Sector: Entrepreneurs, Not Just Survivors
I’ve spoken with countless factory owners in Lahore’s industrial estates who echo Monnoo’s call. One friend running a medium-sized engineering unit told me last month: “We don’t need more loans at 15%. We need predictable policy, cheap energy, and a level playing field.” He’s right. Transparent regulation that rewards innovation instead of cronyism would work wonders.
Bangladesh’s garment story and China’s manufacturing miracle both started with the same simple idea: let private players dream big inside clear rules. Pakistan has the talent—our IT freelancers already earn billions in remittances. Imagine what happens when manufacturing, agriculture processing, and services get the same policy love.
Case Studies: What Worked Elsewhere (And Why We Can Too)
China combined Friedman’s growth tiers with massive investment in infrastructure and human capital. Result? Hundreds of millions lifted out of poverty in one generation. Bangladesh focused on one sector (garments), built backward linkages, and created millions of jobs for women. Even Vietnam, starting from a much lower base, used export-led growth and FDI incentives to average 6–7% GDP growth for decades.
Pakistan has similar advantages: strategic location, young workforce, huge domestic market of 240+ million people, and a resilient entrepreneurial spirit that survives despite everything. The missing piece? Political will to execute structural reforms beyond IMF checklists.
What a Re-thought Economy Would Look Like
First, shift from revenue-chasing to growth-led revenue. Lower corporate taxes strategically in export sectors while cracking down on evasion. Second, get the state out of non-core businesses and focus on regulation and public goods—education, health, justice, basic infrastructure. Third, make credit genuinely available to SMEs at competitive rates. Fourth, invest heavily in skills—our youth need vocational training that matches market demand, not just degrees. Fifth, fix energy: reliable, affordable power is non-negotiable for industry.
None of this is rocket science. It’s common sense that countries from South Korea to Singapore used decades ago.
Pros & Cons: Honest Assessment
Pros of re-thinking now
- Harness demographic dividend before it turns into a liability
- Break the boom-bust cycle that has defined Pakistan since the 1950s
- Attract genuine FDI instead of hot money
- Reduce dependence on repeated IMF bailouts
- Create visible hope for the common man
Cons (and how to manage them)
- Short-term revenue dip during transition—mitigate with better enforcement
- Resistance from vested interests—build broad political consensus
- Risk of inflation flare-up—keep monetary policy vigilant
- Implementation challenges—phase reforms over 3–5 years with clear milestones
The balance sheet is overwhelmingly positive if we act decisively.
People Also Ask (Real Google Questions Answered)
Why does Pakistan’s economy feel broken despite IMF help?
Stabilisation is necessary but not sufficient. Repeated bailouts treat symptoms (low reserves, high inflation) but rarely cure structural issues like low productivity, narrow tax base, and elite capture. We need growth-led reforms alongside stability.
Is Pakistan’s economy improving in 2026?
Yes, on paper—growth is picking up, inflation is down, reserves are stronger. But “improving” feels different when your salary hasn’t risen in three years and job ads are scarce. Real improvement means jobs and rising living standards, not just macro numbers.
What is wrong with Pakistan’s current economic model?
It is banking-centric, contraction-focused, and state-heavy. It prioritises debt servicing over investment and treats the private sector as an ATM rather than the engine of growth.
How can Pakistan create more jobs for its youth?
By shifting to an export- and investment-led model, easing credit for SMEs, investing in skills, and fixing energy and governance. One good factory creates hundreds of direct and indirect jobs; one good policy can create thousands.
Where to get reliable economic data and analysis on Pakistan?
State Bank of Pakistan reports, Pakistan Bureau of Statistics, IMF Article IV consultations, and thoughtful columns like those by Dr Kamal Monnoo offer grounded perspectives beyond headlines.
FAQ: Your Burning Questions
Q1: Will high interest rates ever come down enough for businesses?
They already have—from 22% to 10.5%. Further cuts depend on inflation staying anchored and fiscal discipline. The real game-changer will be when banks start lending more aggressively to productive sectors instead of parking money in government securities.
Q2: Can Pakistan avoid another IMF programme?
Only if we build genuine resilience—higher exports, broader tax base, and domestic savings. The current EFF is helping, but the exit strategy must be home-grown structural change.
Q3: What role should the private sector play?
The leading one. Government should regulate transparently, provide infrastructure, and get out of the way. Unleash creativity and watch productivity soar.
Q4: Is China’s model replicable here?
Parts of it are—focus on manufacturing, infrastructure, and long-term planning. We don’t need to copy everything, but learning from their growth mindset would help enormously.
Q5: What can ordinary citizens do?
Demand accountability, support honest businesses, upskill yourselves, and participate in the national conversation. Change starts with informed citizens refusing to accept the status quo.
The Road Ahead: Hope Over Despair
Dr Kamal Monnoo’s call to re-think the economy wasn’t pessimistic—it was a wake-up call. Pakistan has survived worse. We’ve rebuilt after wars, disasters, and political turmoil. The ingredients for success are already here: resilient people, entrepreneurial DNA, strategic location, and a young population hungry for opportunity.
The question is no longer whether we should change course. The question is how quickly we can do it before frustration turns into something uglier. Let’s stop managing decline and start building abundance. Let’s stop fearing growth and start rewarding it. The common man isn’t asking for miracles—he’s simply asking for a fair shot. It’s time we gave him one.
The economy isn’t working for him yet. But with honest re-thinking, bold execution, and a little courage, it can. The next chapter of Pakistan’s story is still unwritten. Let’s make sure it’s one of hope, jobs, and shared prosperity.