The year 2025 emerged as a defining period of political and financial stress, in which governance uncertainty and economic fragility reinforced each other and deepened instability. Prolonged political polarization, weak consensus-building, and frequent disruptions in policymaking reduced the state’s capacity to address mounting economic challenges. As political attention remained absorbed in contestation rather than reform, public confidence in institutions weakened and economic decision-making became reactive instead of strategic.

Economic performance remained well below potential. Pakistan’s GDP growth during 2025 hovered around 2.5 to 2.6 percent, insufficient to absorb population growth of nearly 2 percent or generate meaningful employment. The unemployment situation deteriorated further as an estimated 1.8 to 2 million young people entered the labor market annually, while job creation in the formal sector remained limited. Overall unemployment and underemployment together affected more than 8 to 9 percent of the labor force, with youth unemployment significantly higher, particularly in urban areas. Educated unemployment became a growing concern as university graduates struggled to find productive employment, contributing to rising frustration and outward migration.

Fiscal stress intensified sharply. The budget deficit remained above 6 percent of GDP, driven primarily by weak revenue collection and escalating debt servicing costs. Total public debt crossed Rs 77 trillion in 2025, exceeding 70 percent of GDP, while interest payments alone surpassed Rs 8.5 trillion, consuming over 60 percent of net federal revenues. This left little fiscal space for development, with public sector development spending compressed to below 2 percent of GDP, undermining infrastructure expansion and human capital investment.

Inflation, although lower than earlier peaks, continued to strain households. Average inflation during 2025 remained in the range of 6 to 7 percent, while food inflation in several months exceeded 10 percent. Sharp increases in electricity and gas tariffs raised the cost of living and industrial production alike. These pressures pushed an estimated 40 to 45 percent of the population close to or below the poverty line, with wage growth failing to keep pace with rising prices.

External sector imbalances remained a central vulnerability. While a temporary current account surplus emerged due to import compression and strong remittance inflows exceeding $30 billion, this adjustment was not the result of structural export growth. Exports remained largely stagnant at around $30 to $32 billion, constrained by limited diversification, low value addition, and competitiveness challenges. In contrast, imports, though reduced, still hovered around $50 to $55 billion, reflecting structural dependence on energy, machinery, chemicals, and essential raw materials. This persistent import–export gap kept pressure on foreign exchange reserves, which fluctuated between $8 and $9 billion, barely sufficient to cover two months of imports.

Foreign direct investment remained subdued at below $2 billion, reflecting investor concerns over political instability, policy reversals, and weak contract enforcement. High global interest rates further raised the cost of external borrowing, while volatile oil prices, averaging between $80 and $90 per barrel, increased the import bill and inflationary risks. Climate-related shocks also disrupted agricultural output, adding to food import needs and rural income losses.

Structural and governance weaknesses amplified these challenges. State-owned enterprises continued to incur losses exceeding Rs 800 billion annually, while power sector circular debt crossed Rs 5 trillion, draining public resources and discouraging private investment. Tax revenues stagnated at around 9 to 10 percent of GDP, among the lowest in the region, forcing repeated reliance on indirect taxes that disproportionately burdened consumers and small businesses.

The experience of 2025 demonstrated that political instability carries a measurable economic cost. Unemployment rises when investment stalls, trade imbalances widen when competitiveness remains unaddressed, and fiscal stress deepens when reforms are delayed. Without political stability, economic policy lacks credibility; without economic opportunity, political legitimacy erodes.

As the year draws to a close, 2025 stands as a sobering reminder that crisis management alone cannot deliver stability. Sustainable recovery demands political maturity, export-led growth, employment generation, fiscal discipline, and institutional reform. Without these, the political and financial pressures witnessed in 2025 risk becoming a recurring cycle rather than an exception.

Dr Alamdar Hussain Malik
Advisor, Veterinary Sciences
University of Veterinary and Animal Sciences, Swat
Former Financial Adviser, Finance Division
Government of Pakistan.