ISLAMABAD — A chilling new report by the Policy Research Institute of Market Economy (PRIME) warns that Pakistan’s nascent macroeconomic recovery, which began in 2025, is rapidly stalling due to geopolitical friction and a severe domestic credit crunch. The think tank highlighted that the government’s insatiable reliance on the domestic banking sector has effectively crowded out the private sector. By May 2026, state credit absorption skyrocketed to a staggering Rs37.2 trillion—nearly three times the Rs13.8 trillion left for private enterprises. Compounding this structural imbalance is a crippling fiscal reality where debt servicing and defense alone consume 94% of net federal revenue, leaving a measly 6% to fund education, healthcare, infrastructure, and social safety nets.
PRIME strongly criticized the status quo, arguing that the current financial freedom score of 60.0 on the Heritage Foundation’s Index of Economic Freedom sharply contradicts the ground reality. Pakistan’s overall score of 48.9 places it firmly in the “Repressed” category, plagued by dismal ratings in property rights and judicial effectiveness. Furthermore, the report pointed out a massive equity gap in the domestic tax structure; under the Budget 2026-27, a documented salaried individual earning Rs5 million faces an effective tax rate of 33.29%, while an informal shopkeeper with identical earnings pays a nominal 0.5% under presumptive schemes. To spark real resilience, the think tank is calling for an aggressive policy shift away from reactive IMF stabilization measures toward absolute economic freedom. Their recommendations include slashing the corporate tax rate to 25%, dropping GST to 15%, fully abolishing the super tax, and capping customs duties at a strict 15% ceiling.
