Pakistan’s Stability Is Built on Weak Demand

 

Pakistan’s economic stability looks better than it did a year ago.

Inflation is falling. The current account has improved. The rupee is calmer. Foreign exchange reserves are no longer at crisis levels.

On paper, the emergency has passed.

But stability built on weak demand is not recovery. It is compression.

The numbers are improving because the economy has slowed down sharply. People are spending less. Businesses are borrowing less. Imports have fallen because economic activity itself has fallen.

The system looks stable because it is under pressure.

The Current Account Improvement: A Closer Look

Pakistan’s current account deficit has narrowed significantly. That is one of the strongest indicators of external stability.

The reason, however, matters.

Imports have dropped because:

High interest rates reduced business expansion

Currency depreciation made foreign goods expensive

Household purchasing power weakened

Consumer demand for durable goods collapsed

Exports have not surged dramatically. Foreign investment has not returned in large volumes.

The external balance improved mainly because the economy cooled.

That is stabilization through contraction.

Sources: State Bank of Pakistan External Sector Data; IMF Pakistan Country Reports.

High Interest Rates and the Credit Freeze

To control inflation and stabilize the currency, the State Bank of Pakistan maintained tight monetary policy for an extended period.

The result is visible in private sector credit.

Businesses are delaying expansion.

Working capital borrowing is cautious.

New investment decisions are slow.

High borrowing costs protect macro stability. But they also suppress growth.

When credit does not grow, production does not grow.

When production does not grow, jobs do not grow.

Stability is achieved. Momentum is lost.

Sources: State Bank of Pakistan Monetary Policy Statements; Pakistan Economic Data Releases.

The Quiet Consumption Slowdown

The most important signal is not in the banking data. It is in household behaviour.

Real incomes have fallen after two years of high inflation.

Utility costs remain elevated.

Food still takes a larger share of monthly budgets.

Families are postponing:

Electronics purchases

Vehicle purchases

Home upgrades

Discretionary spending

Retail and large-scale manufacturing reflect this hesitation.

Lower consumption improves the external balance.

But an economy cannot grow if its consumers are in survival mode.

Sources: Pakistan Bureau of Statistics CPI and consumption trends; Dawn Business coverage.

Why This Stability Feels Different

Traditional recovery has a clear pattern:

Credit expands

Imports rise with investment

Industrial output increases

Employment improves

Pakistan’s current phase shows the opposite:

Credit growth remains weak

Imports are suppressed

Manufacturing recovery is uneven

Job creation remains limited

This is stabilization without expansion.

The economy is balanced, but at a lower level of activity.

The Policy Trade-Off

The policy challenge is real.

If demand increases too quickly:

Imports will rise

The current account may widen

Currency pressure could return

If demand stays weak:

Growth remains low

Unemployment pressure builds

Investment stays cautious

Pakistan economic stability today depends on tight control.

But long-term recovery requires confidence, investment, and export growth.

That transition has not happened yet.

Sources: IMF Program Reviews; World Bank Pakistan Economic Updates.

The Human Layer

Macroeconomic stability is necessary. But households experience the economy differently.

When stability comes with:

Reduced purchasing power

Limited job opportunities

High borrowing costs

It does not feel like recovery.

It feels like adjustment.

The risk is not immediate crisis. The risk is prolonged low growth with limited income improvement.

That kind of pressure builds slowly. It also shapes public sentiment, business expectations, and investment decisions.

What Real Recovery Would Look Like

Pakistan economic stability will become sustainable only when three signals change:

Private sector credit growth resumes

Exports rise faster than imports

Household consumption recovers without triggering external stress

Until then, the economy remains stable because activity is constrained.

That is an achievement. But it is also a warning.

The Bottom Line

Pakistan has moved away from crisis. That matters.

But the current stability reflects restraint, not expansion.

Demand is weak. Credit is cautious. Consumption is compressed.

The economy is balanced.

It is also operating below its potential.

Stability built on weakness can hold for some time.

Recovery built on growth is harder.

And that transition is the real test for Pakistan economic stability.