Pakistan 2025: A Year of Economic Stagnation and Institutional Collapse

A Critical Year-in-Review of Economic Failures and Lawlessness

As 2025 draws to a close, Pakistan stands at a point where decades of institutional decay, economic mismanagement, and political dysfunction have converged into a crisis that can no longer be disguised or spun away. While government officials highlight macroeconomic “stability” and improved headline indicators, the lived reality for most of Pakistan’s 255 million citizens tells a very different story. Behind the official talking points lies an economy stuck in low gear, a state hollowed out by elite capture, and a society where insecurity and injustice have become part of daily life rather than anomalies.

This year will not be remembered as a turning point towards recovery. It is far more likely to be recalled as the moment when Pakistan’s accumulated failures became impossible to ignore. The government can claim some success in averting default and ticking boxes for international creditors, but it has not delivered meaningful growth, decent jobs, or a sense of fairness. Growth remains too weak to lift living standards, taxation feels punitive for those inside the formal system, and the specter of crisis has merely been pushed forward, not resolved. At the same time, lawlessness has surged, terrorism has returned to levels not seen in a decade, and constitutional changes have entrenched military dominance over civilian institutions.

This newsletter takes a critical look at 2025: the fragile macroeconomic stabilization, the structural economic failures, the lived cost of austerity, and the steady collapse of the rule of law. It is not a story of one bad year. It is a story of a system that has finally made the consequences of its choices impossible to hide.

The Growth Illusion: Stabilization Without Development

Anemic GDP Growth Under Demographic Pressure

On paper, Pakistan’s economy in 2025 “recovered” from the brink. Official numbers put GDP growth roughly in the 2.7 to 3 percent range for the fiscal year. That may sound decent in isolation, but for a country with population growth of around 2 percent, it is essentially treading water. Real incomes for many people have barely moved and in some cases have slipped backwards.

The government’s own growth target of around 3.5 to 3.6 percent was quietly missed. Early data for the first quarter of fiscal year 2026 shows growth just above 3.7 percent, driven largely by a bounce in manufacturing. But this rebound is from a very low base and is too fragile and narrow to be described as a genuine turnaround. Agriculture remains battered, services are under strain, and private investment is weak.

International institutions have been blunt in their assessments. Pakistan’s growth rate is simply too low to absorb the roughly two million young people entering the labor force each year. Stabilization has come at the cost of dynamism. Inflation has eased, foreign exchange reserves have climbed from dangerously low levels, and the immediate risk of default has been postponed. But almost all of this has been achieved through harsh adjustment and external support, not by fixing the fundamentals that have kept Pakistan stuck for decades.

The Manufacturing Mirage and Export Collapse

Manufacturing statistics provide another mirage. At first glance, the sector seems to be recovering. In reality, much of Pakistan’s industrial capacity is still sitting idle. Average capacity utilization is abysmally low, and even during “good” months factories rarely get anywhere near the levels needed for economies of scale or competitiveness. Chronic power problems, expensive energy, policy uncertainty, and a hostile business environment keep dragging the sector down.

The export picture is even more alarming. Instead of rising, merchandise exports actually fell during 2025. The first half of the fiscal year saw exports decline by close to 9 percent compared to the previous year, while imports went up, widening the trade deficit significantly. December alone saw exports plunge by around a fifth compared to the same month last year. This is not the trajectory of an economy trying to grow its way out of crisis.

Without export growth, Pakistan cannot earn the foreign exchange it needs to pay for essential imports and service its external debt in a sustainable way. The central bank has had to actively buy dollars from the market simply to keep reserves at a survivable level and keep up with debt repayments. Reserves may look less frightening than they did during the 2022–23 crisis, but the cushion remains thin when measured against the country’s external repayment obligations in the coming years.

Agriculture in Crisis: Climate Shocks and Policy Neglect

Agriculture, which employs the largest share of Pakistan’s workforce and contributes a significant share of GDP, suffered heavily in 2025. The year was shaped by a brutal sequence of climate shocks: early water shortages that hurt sowing and orchard growth, followed by devastating monsoon floods that submerged millions of hectares of farmland, displaced millions of people, and destroyed crops and livestock on a massive scale.

In Punjab and Sindh, crucial crops such as cotton, vegetables, and fruits were wiped out in several districts. For already vulnerable rural households, the floods did not just destroy one season’s output; they obliterated savings, ruined soil quality, damaged irrigation and drainage systems, and left many people trapped in debt or forced into migration.

None of this was truly a surprise. Pakistan has endured repeated mega-floods over the past fifteen years. Yet its flood management and climate adaptation strategy remains stuck in a different era. Plans focused on riverine floods have failed to account for urban flooding, cloudbursts, and the new patterns of heatwaves followed by intense rainfall. Irrigation systems are aging and inefficient, groundwater is over-extracted, and agricultural research and extension services are underfunded and politically neglected.

The result is a sector that faces both immediate disaster and long-term decline, with neither problem taken seriously enough by the political leadership. For a country that still depends heavily on agriculture for food security, employment, and exports, this is not just an environmental issue. It is an existential economic threat.

The Taxation Trap: Revenue Extraction Without Real Reform

Squeezing the Formal Sector

Pakistan’s tax story in 2025 is a textbook example of how not to build a fair and sustainable revenue system. The Federal Board of Revenue did manage to post record collections and pushed the tax-to-GDP ratio into double digits, a level policymakers like to present as a milestone. But those headline gains came from squeezing a narrow base of already compliant taxpayers rather than expanding the net in any meaningful way.

Salaried workers and the formal corporate sector bore the brunt of aggressive taxation. Withholding taxes and bracket creep turned pay slips into pressure points. Even the FBR itself has admitted that the tax burden on the salaried class has become excessive. Meanwhile, vast swathes of the economy – including politically connected sectors and individuals – remain lightly taxed or completely untouched.

Pakistan’s tax-to-GDP ratio is still far below what is needed to finance basic public services, infrastructure, and social protection. At the same time, the burden is deeply skewed. Those who cannot hide their incomes or shift profits offshore pay heavily. Those with power, connections, or the right kind of economic footprint continue to enjoy exemptions, loopholes, and informal deals.

IMF Conditionality and the Mini-Budget Sword

Much of the 2025 tax push is shaped by the requirements of Pakistan’s ongoing program with the International Monetary Fund. The multiyear bailout, worth several billion dollars, comes with a long list of conditions. Among them are aggressive revenue targets, tax policy changes, and a series of structural benchmarks in revenue administration.

As the year progressed, it became clear that tax collection was struggling to keep up with ambitious targets. The FBR missed its half-year goals by a sizeable margin. That shortfall, under the IMF’s framework, triggers the threat of a “mini-budget” – an additional round of mid-year tax measures or spending cuts to bring the program back on track.

The IMF has also demanded a detailed tax reform roadmap, which is supposed to simplify the system, reduce discretion, and make administration more efficient. On paper, all of that sounds reasonable. But the fiscal politics are harsh. When the state is desperate for cash and unwilling or unable to go after the privileged, the easiest path is to crank up indirect taxes and squeeze registered taxpayers further. That is exactly what ordinary Pakistanis fear whenever they hear the word “mini-budget.”

The Human Cost of Fiscal Consolidation

Average inflation did come down in 2025 compared to the previous two years of extreme price spikes. But talking about inflation only in averages hides more than it reveals. Urban consumers, especially lower and middle income households, have been living through a long, grinding erosion of purchasing power. Wages have not kept up, and the price of services such as housing, education, transport, and healthcare remains painfully high.

Food prices have been volatile and often elevated, due in part to flood damage, supply disruptions, and bad storage and distribution. For the poorest households, which spend a large chunk of their income on food, modest easing in the inflation rate does not suddenly feel like “relief.” It feels like a less steep slope on a long uphill struggle.

Energy prices may be the most politically sensitive and socially disruptive part of the adjustment. Repeated increases in electricity and gas tariffs, introduced to cover losses in the power sector and fulfill IMF conditions, have hit both households and small businesses hard. Many families now face power bills that consume an alarming share of their monthly income. Small manufacturers and shops find themselves unable to cope with an energy cost structure that makes their products uncompetitive.

All of this has fed directly into rising poverty. By updated global benchmarks, almost half of Pakistan’s population is classified as poor, and a large minority lives in conditions of extreme poverty. The gains made in poverty reduction over the previous two decades have largely been wiped out. People who had just managed to climb above the poverty line have been pushed back down by a mix of inflation, floods, job losses, and shrinking public support.

Energy Sector Catastrophe: Circular Debt and Capacity Payments

The Circular Debt Monster

If there is one sector that captures the full scale of Pakistan’s governance and economic failures, it is energy. By the end of 2025, the power sector’s circular debt had swollen to well over five trillion rupees. This is not an abstract accounting issue. It is a rolling crisis that distorts everything from public finances and investor confidence to what ordinary people pay for electricity.

Circular debt in Pakistan is a vicious cycle. The government underprices electricity or fails to pay subsidies on time. Distribution companies lose money through theft, technical losses, and poor billing practices. They fail to fully pay power producers. Those producers in turn delay payments to fuel suppliers and banks. The government then borrows or restructures to plug the gaps, often by issuing more debt or raising tariffs, and the whole cycle starts again.

The state has periodically announced “reduction” in circular debt through one-off operations, renegotiations, and financial engineering. In 2025, there were claims of partial reduction through refinancing and tough negotiations with power producers and banks. But these steps barely dent the underlying flow problem. As long as inefficiencies, political interference, theft, and distorted contracts remain in place, circular debt will keep coming back.

Capacity Payments and Policy Blunders

Over the past decade and a half, Pakistan added large amounts of power generation capacity, including plants fueled by imported LNG and coal. Many of these plants were built under take-or-pay contracts that guarantee capacity payments to private producers whether or not the electricity is actually used. At the time, this was presented as the only way to end chronic load-shedding and power cuts.

Today, Pakistan finds itself paying huge sums every year for idle generation capacity while average utilization rates remain appallingly low. The country has, in effect, locked itself into an expensive and import-dependent energy architecture. This is happening at a time when global energy prices are volatile and Pakistan’s foreign exchange position is fragile.

One of the most telling episodes of 2025 was the auction of dozens of defunct thermal plants as scrap. What could have been modernized and rehabilitated was instead cut up and sold off for a fraction of the cost of the plants that replaced them. Instead of investing in maintaining and improving domestic capacity, policymakers repeatedly chose large shiny projects, often with foreign debt attached, that created new opportunities for rents while saddling the public with long-term costs.

The result is an energy sector where consumers are punished with high tariffs, industry is undermined by expensive and unreliable power, and the state is trapped in a debt spiral that eats up fiscal space and chokes growth. It is hard to imagine a more perfect illustration of how bad incentives, poor planning, and elite capture can destroy a critical sector.

Electricity in 2025: Outages in a “Surplus” System

Load-shedding as the norm, not the exception

By 2025, Pakistan officially has enough installed power capacity on paper, yet ordinary people still live with load-shedding as a normal part of daily life. It is a strange paradox. The state keeps reminding citizens that new plants have come online and the grid has been “stabilised,” but fans still stop, lights still go out, and the hum of generators and UPS systems still fills the gaps.

For many urban and peri-urban neighbourhoods, the language of “scheduled” and “technical” load-shedding has become part of everyday vocabulary. In low income areas and places labelled as high loss feeders, planned cuts can stretch across large chunks of the day, especially in summer. Families plan cooking, studying, and even sleep around the load-shedding schedule. In rural districts, especially in parts of Balochistan and interior Sindh, outages can be longer, more frequent, and more arbitrary. The quiet message is clear: those who live in privileged areas or have money are effectively guaranteed more reliable power. Everyone else gets rationed electricity.

Uncertainty is often worse than the hours without power. Outages that arrive without notice disrupt everything from small businesses and clinics to schools and government offices. Even when official schedules exist, they are not always followed. Most people have learned the hard way that if they want some predictability, they need their own backup plan. That backup plan, however, comes with a cost that the state never truly acknowledges.

The rise of the shadow grid

Because the public grid cannot be trusted on its own, Pakistan has quietly built a private, improvised energy system on top of it. Households with some savings install UPS systems, inverters, or small solar setups. Middle class families debate whether to invest in rooftop solar or stick with a combination of batteries and a noisy generator. Large homes and commercial buildings design full backup systems that can run for hours without the grid.

Smaller businesses do what they can. Some buy second hand generators that gulp fuel and break down often. Others simply shut their doors when the power goes and reopen when it returns. In poorer localities, where even a simple UPS is out of reach, people just sit through the darkness and heat. For many, the flicker of a neighbour’s lit window during a cut is a reminder that even basic electricity has become a class marker.

All of this adds up to an enormous waste of money and effort. Instead of one efficient system, Pakistan ends up with thousands of small, inefficient substitutes. Diesel generators burn expensive fuel at poor efficiency. Low quality batteries fail early and end up as toxic waste. Even solar, which should be a huge opportunity in such a sunny country, is being added in a piecemeal, unplanned way, with little integration into a broader national strategy.

Tariffs, politics, and the geography of blackouts

Electricity policy in 2025 sits at the intersection of economics and politics. Tariffs have been rising steadily as the government tries to cover capacity payments, fuel import bills, and losses in the system. For a growing number of households, the monthly bill has become something to dread rather than just another expense. People talk about bill shocks the way they once talked about sudden medical costs.

At the same time, the enforcement of bill collection and anti theft campaigns is uneven. Some neighbourhoods face strict disconnections and public crackdowns. Others benefit from quiet understandings and political patronage. Feeders branded as “high loss” are subjected to extra load-shedding on the grounds that the utility cannot keep supplying full power where recovery is poor. But those labels are not always neutral. They reflect power relations and administrative choices as much as actual theft or non payment.

This creates a bitter sense of injustice. Families that pay their bills honestly still suffer long outages because they happen to live on a feeder with a bad reputation. Meanwhile, some powerful defaulters and well connected users find ways to avoid both bills and cuts. The perception, and often the reality, is that the system punishes the weak and negotiates with the strong.

What this means for the real economy

For the economy, especially for small and medium sized businesses, 2025’s electricity story is one of constant obstacles. Textile units, metal workshops, plastics manufacturers, bakeries, cold storage chains, barber shops, clinics, IT start ups, and phone repair stalls all rely on steady power. Each unplanned outage can mean a ruined batch, a missed deadline, or a lost customer.

Big exporters sometimes manage to shield themselves with captive power plants or sophisticated backup arrangements. They can pass some of those extra costs on to international buyers or squeeze their workers. But even they face hard limits, especially when energy prices and policy signals keep changing. Smaller firms have no such cushion. When the lights go out, they shut down production or stumble along with weak backup and hope they survive long enough to see better days.

At a time when Pakistan badly needs productivity, exports, and job creation, its power system behaves like a drag anchor. Electricity should be the silent partner of development, enabling people to study, work, heal, and create without thinking about it. In 2025, it has become something people have to think about all the time, and plan around every day. That is a failure of governance as much as it is a technical problem.

Textile Review: An Industry in Free Fall

From pride to panic

For decades, textiles have been the sector Pakistan points to with a mixture of pride and dependence. The country built whole cities and regions around spinning mills, weaving units, dyeing houses, and stitching floors. The sector provided millions of jobs and generated the bulk of merchandise export earnings. In theory, it should have been a natural champion in the face of crisis.

By the end of 2025, that narrative feels painfully out of date. Industry leaders talk openly about collapse and survival rather than growth and expansion. Workers in textile belts describe widespread closures, unpaid wages, and a constant fear of being laid off. The mood has shifted from cautious optimism in a difficult environment to something closer to desperation.

Export numbers reflect this shift. Instead of rising, as Pakistan so desperately needs, textile exports in 2025 have stumbled. In the first half of the fiscal year, overall exports fell compared to the previous year, and textiles, while still dominant, were no longer strong enough to pull the rest of the export basket upward. Month after month, exporters watched orders soften, margins erode, and competitiveness slide.

Cotton at the heart of the crisis

The problems begin in the fields. Cotton was once positioned as Pakistan’s “white gold,” a crop that underpinned its entire textile value chain. In 2025, cotton arrivals are roughly half of what the country once produced at its peak. Targets have been missed by wide margins. In some regions, farmers have simply given up on cotton because it no longer pays compared to other crops.

The reasons are well known. Seeds are not good enough. Pests have become harder to control. Water is mismanaged. Price signals are weak. Government support is erratic and often arrives too late or in the wrong form. Climate shocks, including heatwaves and floods, batter crops that are already in trouble. Years of neglect cannot be reversed in a single season, and the 2025 harvest shows just how deep the problem runs.

To keep mills running, Pakistan has had to import large volumes of cotton at significant cost. This might keep looms and spindles moving, but it eats into foreign exchange reserves and exposes the industry to global price spikes. Taxes and refund delays on imported cotton further tie up precious working capital. Many spinners find themselves squeezed between expensive inputs and buyers who cannot or will not pay higher prices.

Energy: the cost no one can escape

If cotton is the foundation that is crumbling, energy is the overhead that is strangling the sector. Textile production is energy hungry at every stage, from ginning and spinning to weaving, knitting, dyeing, and finishing. When electricity and gas become expensive, unpredictable, or both, the whole business model starts to wobble.

In 2025, energy has become one of the biggest complaints in every textile zone. Tariffs have risen to levels that leave Pakistani producers far more expensive than their competitors in Bangladesh, Vietnam, or India. Outages and low gas pressure add a layer of unreliability on top. Each time the government tweaks prices or adjusts tariffs, factories are forced to recalculate costs and renegotiate with buyers. The feeling on the factory floor is that the rules keep changing while everyone else in the region plays a more stable game.

Some larger units have tried to fight back by investing in captive power or solar. This helps, but it is not a magic solution. Upfront costs are high. Banks are wary. Policy around net metering and distributed generation keeps shifting. In any case, a sector cannot be healthy if it has to build a second power system just to survive the first.

A logistics shock at the worst moment

As if long term pressures were not enough, the textile sector was hit in 2025 by a severe logistics shock when cargo transporters launched a nationwide strike. For several days, trucks simply stopped moving. Cotton, yarn, and chemicals could not reach mills. Finished garments and home textiles could not reach ports. Export deadlines slipped. Warehouses filled up.

For exporters who live and die by delivery dates, those lost days were painful. Some orders were cancelled outright. Others were penalised. Buyers were reminded that Pakistan carries not only the usual risks of a developing economy but also the added risk that basic logistics can come to a halt with little warning. At a time when competitors are selling themselves as reliable, this is exactly the kind of message Pakistan cannot afford to send.

Within Pakistan, the strike exposed just how fragile the backbone of the trading system is. A small group of actors can effectively shut down the main arteries of the export economy. In the end, the strike was resolved, but the damage lingered in the form of shaken confidence and loss of trust.

Losing ground to the neighbours

While Pakistan has been stumbling, its regional rivals have been moving steadily ahead. Bangladesh has spent years aligning policy around its garments sector, offering relative predictability on energy, incentives, and regulation. Vietnam has leveraged trade agreements, better logistics, and a friendlier investment climate. India continues to deepen its own textile and apparel capabilities.

Buyers do not make sourcing decisions based on patriotism or nostalgia. They look at cost, quality, reliability, and risk. Over time, Pakistan has been slipping on each of these measures. Costs have risen faster than in competing countries. Quality is held back by underinvestment in technology and skills. Reliability has been battered by outages, strikes, and policy zigzags. Risk has grown, not shrunk.

This shows up in market share. Where Pakistan once seemed poised to expand its footprint in global textiles, it is now struggling just to defend what it has. And once buyers shift even a portion of their orders to other countries, they rarely rush back. The machinery, training, and relationships they build elsewhere become sticky. Pakistan risks being treated as a marginal, high risk option rather than a core sourcing destination.

Lives behind the numbers

Behind every figure on export earnings or production volumes are people and communities. In Faisalabad, Karachi, Multan, Lahore, and countless smaller towns, textiles are not an abstract industry. They are the factory gates that open at dawn, the buses that transport workers, the canteens that serve tea, the schools financed by industrial wages, the roadside stalls that sell snacks during shift breaks.

When a spinning mill closes, it is not just the workers on its payroll who suffer. The woman who runs a small food stall outside the gate loses customers. The rickshaw drivers who ferry workers to and from the factory lose fares. The landlord who rents rooms to workers faces empty rooms. The entire local ecosystem takes a hit.

For workers, especially those with specialised skills, the collapse of a unit can feel like the ground giving way under their feet. Many have spent years mastering a particular machine or process. Their skills do not automatically transfer to another job, especially in a stagnating economy. Women workers face an especially harsh reality. Textile and garment factories have been one of the few spaces where many women could earn wages outside the home. When those opportunities vanish, they have very few alternatives.

A strategy that never quite arrived

What makes the 2025 textile story so frustrating is that none of this is particularly new or surprising. For years, experts and industry players have talked about the need for a proper textile strategy. They have called for better seeds and research for cotton, more stable and competitive energy pricing, faster tax and refund processes, support for moving up the value chain, and investments in training and technology.

Instead of a coherent, long term plan, the sector has received scattered, short term packages. A subsidy here, a rebate there, a one off concession to calm protests or buy time. Tariffs are cut for one input and quietly raised for another. A promise is made to keep energy rates at a certain level, only to be reversed under pressure from lenders or fiscal constraints.

Meanwhile, internal vested interests also play a role. Some actors within the industry benefit from the current, distorted environment and quietly resist changes that might level the playing field. Others are simply too focused on surviving month to month to engage with long term reform. The state, for its part, has rarely treated textiles as a strategic sector that deserves serious, sustained policy attention rather than headline grabbing announcements.

In 2025, the gap between what textiles could have been and what they actually are has grown painfully visible. Pakistan still has mills, workers, designers, and a reputation for certain products. But unless the country confronts the underlying problems with cotton, energy, logistics, and policy, the sector will continue to shrink in real terms. If that happens, the cost will not be measured only in lost dollars. It will be measured in the quiet shuttering of factory gates and the slow emptying out of entire industrial neighborhoods.

Privatization and State-Owned Enterprises: The PIA Debacle

PIA’s Sale: Win or Mirage?

After years of false starts and political battles, the government finally completed the sale of a majority stake in Pakistan International Airlines in 2025. Officials hailed it as a major success that proved Pakistan was finally serious about reforming its loss-making state-owned enterprises. The deal fetched more than the reserve price and brought in a private consortium with financial muscle.

But once you look past the headlines, the picture is less impressive. The state still holds a significant portion of PIA’s legacy liabilities, which run into hundreds of billions of rupees. Servicing those liabilities will cost tens of billions every year, even after privatization. The buyer has taken over the airline’s operations and some of its debt, but the public sector remains on the hook for a massive financial burden created by years of mismanagement, patronage hiring, and political interference.

The buyer consortium itself is dominated by domestic business groups, not global aviation players, and has complex interests across finance, real estate, and education. Whether it can actually turn PIA into a profitable, well-run airline remains an open question. The state has essentially paid a huge price simply to get the airline off its books, without any guarantee that this will produce wider benefits for the economy or passengers.

SOEs as Patronage Machines

PIA is not an isolated case. State-owned enterprises in Pakistan have long functioned as patronage machines rather than efficient providers of services. They are vehicles for jobs distribution, political influence, and rent extraction. Their boards and top management posts are often handed out based on connections rather than competence. Audits are weak, oversight is sporadic, and scandals come and go without real accountability.

These enterprises drain public finances through chronic losses, periodic bailouts, and guaranteed credit. They also crowd out private investment by occupying space in sectors where the private sector could potentially do better if the rules of the game were fair. Yet any serious attempt to reform or privatize them runs into resistance from multiple directions: unions that fear job losses, politicians who fear losing control and influence, and business actors who worry about losing favorable arrangements.

International partners have been pushing Pakistan to tackle this problem for years. The PIA sale is being presented as a case study for how to move forward on other privatizations, including in the power sector. But without transparent process, realistic valuations, clear regulatory frameworks, and a willingness to confront entrenched interests, privatization risks becoming another pathway for insiders to capture public assets on favorable terms, rather than a genuine reform of the state.

Employment Crisis: A Generation Locked Out

Rising Unemployment and Informality

If there is a single indicator that captures the despair many Pakistanis feel today, it is youth unemployment. Overall unemployment is estimated to be around 7 percent, but that headline figure hides far more dramatic realities. Youth unemployment is close to 30 percent. In other words, almost one in three young people actively seeking work cannot find it.

This does not capture those who have given up looking altogether. Nor does it reflect the millions of young Pakistanis stuck in low-paid, insecure, informal work that offers no benefits, no social protection, and no prospects for advancement. Informality still dominates the labor market. Most new entrants to the labor force are being absorbed into precarious jobs in small workshops, street vending, services, or seasonal agricultural labor.

The combination of low growth, weak investment, and repeated macroeconomic shocks has made job creation an afterthought in policy debates. “Stability” has been achieved without a serious conversation about where decent jobs will come from. The result is a simmering social crisis. A young population that was once described as Pakistan’s “demographic dividend” is being written off by its own state and elite.

Education Without Opportunity

At the root of the employment crisis is a deeper problem: the education system and the labor market do not talk to each other. Pakistan’s schooling system is deeply unequal. A tiny minority goes to high quality private or elite public institutions that open doors to well-paying careers at home and abroad. A large majority is stuck with underfunded public schools or low-fee private schools that often deliver poor learning outcomes.

For many families, even low-cost private schooling has become unaffordable. When livelihoods are squeezed by inflation and job losses, education is one of the first “discretionary” items to be cut. Dropping out of school, even in middle grades, becomes a way to save money and add an extra pair of hands to household income. Child labor is not an abstract issue; it is a survival strategy.

Even for those who do finish school or college, the transition to work is fraught. Degrees and diplomas often have little relevance to market needs. Employers complain about skill shortages and lack of practical training even as graduates struggle to find any job at all. Merit frequently takes a back seat to connections, kinship networks, and loyalty to the right faction or party.

This is how a society quietly wastes its human potential. A generation that should have been the engine of growth and innovation is instead being tossed on the scrapheap of informal work, migration, or hopeless waiting. The economic cost of this is enormous. The social cost, in terms of alienation, resentment, and potential instability, is even greater.

Constitutional Breakdown: The 27th Amendment and Military Supremacy

The Assault on Judicial Independence

In November 2025, Pakistan’s parliament pushed through the 27th Constitutional Amendment in a matter of days. On the surface, it reorganizes the judiciary and military command structure. In substance, it marks a decisive shift away from any pretense of balanced constitutional governance.

The amendment creates a new Federal Constitutional Court with exclusive jurisdiction over constitutional matters, taking away a central role that the Supreme Court used to play. The way this new court is structured and appointed gives the executive – and by extension the establishment – significant leverage over its composition and direction. Initial appointments are heavily influenced by the government, and the changes to rules on transferring judges between high courts weaken judicial security of tenure.

Legal and human rights groups inside and outside Pakistan have been unusually blunt, describing the amendment as an attack on judicial independence and the rule of law. The message is clear: judges who do not fall in line with the wishes of those in power can be sidelined, transferred, or neutralized. The space for independent constitutional adjudication shrinks, while a new court, created and shaped by the current ruling arrangement, takes control of sensitive cases.

Field Marshal Asim Munir and the New Military Order

The same amendment formalizes an even more direct concentration of power in the military leadership. It creates the post of Chief of Defence Forces, effectively consolidating control over the army, air force, navy, and strategic assets under one office. The current army chief, Asim Munir, assumes this new role with an extended tenure and lifetime immunity from prosecution.

In practical terms, this moves Pakistan further away from any meaningful civilian oversight of the armed forces. The symbolism is striking: the new military structure is written into the constitution, accompanied by provisions that shield top commanders from legal accountability for life. The older “hybrid” model, where the army wielded power from behind a democratic façade, has been supplemented by an open, constitutionalized recognition of military primacy.

This is not happening in a vacuum. It comes after years of managing political transitions, engineering governments, and shaping judicial outcomes. The amendment locks in those practices by redesigning the playing field itself. It will shape not only the current government, but also future elections and successions, including the crucial general election at the end of the decade.

What It Means for Democracy and Regional Stability

The consequences for democracy are obvious. When courts are tamed and the military is formally elevated above other institutions, elections become less about policy and more about managing optics. Political parties are reminded that their survival and freedom are contingent on staying within boundaries set elsewhere. Opposition, especially that which challenges the core of the security and power structure, faces repression rather than competition.

There are regional implications as well. India, Afghanistan, Iran, and China all look at Pakistan through the lens of how decisions are made in Islamabad and Rawalpindi. The consolidation of military control over nuclear assets, foreign policy, and internal security means crisis escalation dynamics are increasingly tied to a narrow circle of decision makers. This can cut both ways – it may enable discipline, but it can also reduce space for de-escalation when nationalist sentiment or miscalculation runs high.

Inside Pakistan, the amendment deepens already raw tensions around federalism, provincial rights, and the long history of military interference. In provinces like Balochistan and Khyber Pakhtunkhwa, where grievances against the center and the security establishment are deep, the perception that the constitution is now even more tilted towards centralized, militarized control will further widen the trust gap.

Lawlessness and Terrorism: A Security Unraveling

The Deadliest Year in a Decade

By the end of 2025, Pakistan had lived through its deadliest year of violence in ten years. Terrorist attacks, insurgent assaults, and security operations claimed thousands of lives. The country saw a sharp rise in killings compared to the relatively lower levels of the late 2010s.

Khyber Pakhtunkhwa and Balochistan were once again the main arenas of violence. In KP, attacks and fatalities rose steeply compared to just a few years ago. The province has paid a heavy price for the resurgence of militant networks such as the Pakistani Taliban, who have benefited from sanctuaries and support across the border in Afghanistan after the Taliban takeover in Kabul.

The toll is not limited to soldiers and militants. Civilians, including women and children, have been caught in suicide attacks, roadside bombs, targeted shootings, and crossfire. Each headline about a blast or an ambush represents families torn apart, livelihoods destroyed, and traumas that outlast the news cycle.

The Baloch Insurgency

Balochistan has seen its own distinct pattern of conflict. Separatist groups, especially the Balochistan Liberation Army, have intensified their operations. Their attacks have targeted state forces, infrastructure, and increasingly non-Baloch laborers and workers from other provinces. This ethnic targeting has added a new layer of fear and bitterness.

Some of the year’s most chilling incidents came from Baloch insurgents pulling passengers off buses, checking their identity, and executing them on the roadside. There have also been multiple attacks on Chinese nationals and projects associated with the China Pakistan Economic Corridor, including suicide bombings and ambushes.

The state’s response has been dominated by militarized tactics: large scale operations, raids, arrests, and repeated allegations of enforced disappearances and extrajudicial killings. This security heavy approach, pursued for years, has not addressed the political roots of the conflict. Instead, it has hardened sentiments on both sides and narrowed the space for any credible political settlement.

Urban Crime and Political Violence

Beyond organized militancy, everyday lawlessness has become more visible in Pakistan’s major cities. Karachi, Lahore, and other urban centers have witnessed persistent street crime, robberies, and incidents of violence that leave citizens feeling exposed and unprotected. In Karachi alone, tens of thousands of street crime cases are reported every year, and many more go unreported.

The political environment around Imran Khan’s arrest and ongoing detention has further undermined the sense of order. Mass protests, crackdowns, and the use of security laws against political workers have created an atmosphere in which the line between law enforcement and political persecution is increasingly blurry. The use of military courts to try civilians, including journalists, for alleged involvement in protest related offenses is a stark sign of how far Pakistan has drifted from basic democratic norms.

When ordinary people see gangs operating with impunity, militants hitting security targets, and critical voices punished through courts or abduction, the message is clear: the law does not protect everyone equally. It protects some and disciplines others.

Elite Capture and Corruption: Counting the Cost

How Much Does Corruption Cost?

One of the most revealing developments of 2025 was the release of a detailed diagnostic on governance and corruption by Pakistan’s main international lender. The report did something rarely seen in official documents: it put a rough number on the cost of Pakistan’s governance failures and corruption, estimating that they drain several percentage points of GDP every single year.

In plain terms, this means that Pakistan’s economy could be growing two or three times faster if it were not weighed down by systematic leakages, patronage, and predatory behavior by those with power. These are not isolated incidents; they are embedded in how public contracts are awarded, how regulators behave, how budgets are drafted and implemented, and how justice is administered.

The report pointed specifically to areas like public procurement, state-owned enterprises, tax policy and administration, and the judiciary as key sites of distortion. It described a landscape where politically connected actors can bend rules, capture markets, and siphon off rents, while ordinary firms and citizens are left to navigate a maze of complexity, bribes, and arbitrary decisions.

Elite Networks and Structural Capture

The idea of “elite capture” is often thrown around carelessly. The diagnostic tried to describe it in concrete terms. Think of a web of relationships linking senior bureaucrats, politicians, top brass, business families, real estate developers, and media owners. They may compete among themselves, but they share an interest in keeping certain things off limits: land reform, serious tax enforcement on wealth, transparent procurement, and genuinely independent regulators and courts.

This system is not run by a single mastermind. It is sustained by overlapping networks that know how to block or dilute reforms that threaten their interests. An attempt to digitize procurement can be slowed down. A proposal to simplify taxes and eliminate exemptions can be quietly smothered. A judge who shows too much independence can be sidelined. A regulator who proves inconvenient can be transferred.

This is why so many reform blueprints have failed. You can change laws and announce policies, but if the underlying power structure remains intact, the system will resist. At best, some cosmetic changes occur. At worst, reforms become new opportunities for rent seeking under fresh labels.

The Stock Market Paradox: Rally at the Top, Ruin Below

The KSE-100’s Record Run

Against this grim backdrop, Pakistan’s stock market has delivered returns that would make investors in more stable countries jealous. The benchmark index surged by around 50 percent over the course of 2025, on top of already strong gains in the previous two years. Media headlines abroad have highlighted Pakistan as one of the world’s best performing markets.

Brokerage reports talk about reforms, improved sentiment, and stabilization. The narrative is that the worst is behind Pakistan. Some foreign investors, starved for yield in other markets, have dipped into Pakistani equities, lured by low valuations and high potential upside if the country manages to muddle through.

Domestically, individual investors have also piled into stocks. With real estate stagnant, deposit rates lower than before, and few other formal avenues to preserve wealth, equities have become the preferred outlet for those with surplus capital. Social media is full of bullish narratives, success stories, and calls to “trust the process.”

A Bubble Standing on Fragile Ground

But what does the stock market actually measure in a context like this? The leading index is dominated by a handful of sectors: banks, energy, telecoms, cement, and fertilizers. These sectors benefit from policies and structures that often look very different from what ordinary people and small businesses face. Banks earn high spreads on government paper. Energy companies are cushioned by tariff structures and guarantees. Some firms gain from currency movements, others from regulatory decisions.

When these companies do well, share prices rise, and portfolios swell. Yet the same dynamics that boost their profits frequently hurt the broader population: higher interest payments for the state, higher electricity prices for consumers, and a distorted playing field that discourages new entrants and innovation.

In a country where nearly half the population is poor and a staggering number of young people cannot find decent work, a roaring stock market mainly reflects how the top slice of society is doing. It does not tell us about the health of the economic ecosystem as a whole. If anything, the stark contrast between stock gains and everyday hardship underscores just how unequal Pakistan’s economy has become.

Conclusion

By the time 2025 ends, Pakistan has ticked some boxes that matter to its creditors and financial markets. It has a functioning IMF program. It has avoided default. Reserves are higher than they were at the peak of the crisis. Inflation is lower than the terrifying peaks of the recent past. The stock market is up. Credit rating agencies have issued cautiously positive signals.

But these achievements are, at best, crisis management. They have not translated into meaningful improvements in the lives of most Pakistanis. Economic growth is too weak, too shallow, and too narrowly based. Jobs are not being created in the numbers or quality required. Poverty and inequality are rising, not falling. Public services remain broken. Climate shocks are growing more severe. And violence has made an ugly comeback.

On top of all this, the constitutional and institutional trajectory is moving in the wrong direction. Instead of strengthening civilian institutions, protecting judicial independence, and deepening democracy, Pakistan has rewritten its basic law to entrench military supremacy and weaken checks and balances. Instead of confronting the networks of elite capture that bleed the economy, the system continues to protect them.

The path out of this crisis is not mysterious. It has been described in countless reports: broaden the tax base instead of punishing the already taxed; clean up the energy sector instead of repeatedly passing the bill to consumers; reform state owned enterprises rather than using them as patronage pools; build a genuinely independent anti-corruption body; protect judicial independence; invest in education, health, and climate resilience; and reorient the economy towards exports and productivity rather than speculation and subsidies.

What has always been missing is not ideas, but power: the political will and social coalition needed to challenge the beneficiaries of the status quo. 2025 has made it clearer than ever who wins from the current system and who loses. Whether the coming years bring more of the same, or something better, depends on whether that imbalance can be confronted, not just described.

For now, Pakistan ends 2025 stabilized on paper but deeply unsettled in reality: a country in which the poor pay for reforms they did not design, the young inherit crises they did not cause, and the powerful remain largely insulated from the consequences of their decisions.