There is a general perception that Pakistan’s economy is perpetually trapped in a “boom-and-bust” cycle and will likely remain so. This self-limiting belief has convinced successive governments and the public that any attempt at rapid economic growth is inevitably followed by crisis or stagnation.

It’s a mindset not unlike the myth of Sisyphus, the Greek king condemned by gods to eternally push a boulder uphill, only for it to roll back down just before reaching the summit. Similarly, economic pessimists dismiss every early sign of recovery as part of a futile, exhausting cycle, one that’s destined to end in failure.

The prevailing view is that when a new government comes to power, its first task is to secure an IMF bailout, which provides short-term stability and external financing. This fuels a consumption-led boom, pushing GDP growth to 5% or 6%.

Encouraged by early success, the government increases spending on subsidies and projects. But because this growth lacks export depth or productivity gains, the current account deficit widens, reserves deplete, and the country once again returns to the IMF, restarting the cycle. This raises two questions: does the data confirm that Pakistan has always been trapped in boom-bust cycles, and has it ever outperformed its peers over a sustained period? Both can be answered by comparing Pakistan’s record with India, often seen as a post-1990s growth model.

According to Statisticstimes.com, between 1960 and 2008, Pakistan’s per capita income was higher than India’s for 35 years, while India surpassed Pakistan for only 14 years. Despite volatility, Pakistan performed better overall for most of that period.

But 2008 marked a turning point. Pakistan’s exports began to stagnate, and its GDP growth rate also starting declining, averaging about 3% since then. In contrast, India, Bangladesh, and other regional peers averaged over 6% GDP growth. As a result, Pakistan’s per capita income, which was higher at $1,088 in 2008 compared to India’s $994, fell behind and by 2024 had trailed to $1,643 against India’s $2,300.

So, what changed in 2008? In addition to the global financial crisis, two external shocks hit developing countries: crude oil prices rose by 180% and food commodity prices by 60%. In Pakistan, a newly elected government responded by imposing steep regulatory duties on imports, reversing the trade liberalisation that had been gradually achieved since the 1990s. While oil and food prices normalised by 2009, those duties remained.

Since 2014, additional customs duties have further isolated Pakistan from the booming global trade flows. These new tariff barriers resulted in Pakistan being ranked as having “the second highest effective protection for domestic producers of final consumption goods in the world.” After nearly 17 years of setbacks from protectionist policies, the government has finally recognised that global isolation is unsustainable for a small economy. To lift people out of poverty, as China, Vietnam, and other countries have done, Pakistan must boost productivity and expand exports at a pace comparable to successful developing nations.

The recent budget marks an important step towards trade liberalisation. Though reforms will be phased in over the next five years, they offer hope of putting the country back on a sustainable growth path and reducing dependence on the IMF bailout packages. With the reconfiguration of global supply chains and the opening of the economy, Pakistan could begin to attract foreign investment at levels far beyond the current trickle.

This transition will not be easy. For almost two decades, large industries have been shielded from competition by high tariff walls. Many firms have failed to upgrade their plants or adopt modern technology, leading to higher energy consumption and lower productivity. Consequently, although Pakistan produces several engineering goods, such as household appliances, vehicles, and mobile phones, it cannot compete internationally. Instead, producers prefer to sell domestically, where tariff protection has so far guaranteed higher profits.

Furthermore, a deep-rooted fear of the boom-bust cycle will continue to constrain the economy unless excessive caution is replaced with a more balanced approach that allows for measured risk-taking. Monetary policy illustrates this mindset clearly: Pakistan now has the widest real interest rate gap among its peers, 11% compared to 5.5% in India, despite similar inflation of around 5%. This large disparity continues to stifle investment, slow the growth of large-scale manufacturing, and keep unemployment high.

It is time to acknowledge the economic missteps of the past 17 years and work to regain the lost market share while catching up in GDP growth with peer economies. Pakistan must break free from the self-limiting fear of boom-and-bust cycles and instead pursue bold, forward-looking economic policies.

The decision to re-engage with the global economy and privatise loss-making enterprises is a vital first step, but lasting success will depend on dismantling the regulatory barriers and attracting stronger investment to unlock growth and reduce dependence on external bailouts.

The writer is a member of the PM’s Committee on Tariff Reforms and previously served as Pakistan’s Ambassador to the WTO and FAO’s representative to the UN