Beyond Roads And Power Plants: Pakistan’s Development Paradox

Pakistan’s infrastructure debate begins with the wrong question. Roads, power systems and water networks may generate social benefits, but most earn rupees, if they earn revenue at all, while foreign loans require dollars. A 2024 G20/GIF/IMF report identifies mismatches between local-currency revenues and hard-currency financing as a central foreign-exchange risk in infrastructure investment. Calling expenditure “development” does not resolve it. At the national level, dollars must come from exports, remittances, investment inflows, reserves or fresh borrowing. Remittances provide vital support, but they are not a substitute for a productive economy. Sustained emigration by skilled and innovative workers may also weaken entrepreneurship, institutional capacity and the development of export industries at home. Converting rupee tolls or taxes into dollars merely transfers scarce foreign exchange from elsewhere in the economy. When inflows fall short, the result is depreciation, import compression, refinancing pressure or default even if the road remains busy.

Claims that infrastructure will stimulate exports must therefore be demonstrated, not assumed. Appraisal should identify the firms that will benefit, the constraint being removed, the additional competitive output and the likely buyers; deduct imported inputs, fuel and profit remittances; compare cheaper alternatives; and establish when net earnings will arrive. A motorway does not produce an export order, while equipment imports and debt service often precede the exports invoked to justify it.

Does Pakistan need another broad construction drive before it can grow? The evidence does not support that proposition. It also does not support declaring the country’s infrastructure complete. Pakistan has a mixed problem: substantial assets that perform below their potential, alongside gaps in access, reliability and resilience. The right question is which specific constraint prevents productive activity, and whether construction is the least-cost way to remove it. Logistics still needs improvement, but its failings cannot be reduced to missing roads. Pakistan’s National Tariff Commission’s shipping and logistics assessment examines trade facilitation as a system. Ports, inland connections, customs procedures, clearance times and logistics services must work together. Faster documentation or better coordination can improve the return on an existing corridor. Building another corridor while leaving the delays intact is an expensive way of avoiding administrative reform.

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Electricity provides the clearest warning against confusing additional assets with better service. NEPRA’s FY2024–25 generation review reports average thermal-plant utilisation of 42.5 per cent against reference capacity. Capacity charges represented 61 per cent of the reported power-purchase cost. Low annual utilisation does not prove every megawatt is unnecessary: peaks, reserve requirements, outages and fuel constraints matter. But it puts the burden of proof firmly on further generation commitments.

NEPRA’s transmission review identifies constraints that limit transfers from cost-effective southern generation, while its distribution review documents persistent losses and unreliable service. Generation capacity expanded faster than the networks needed to evacuate and deliver power efficiently. The priority now is to repair existing plants, remove transmission bottlenecks, improve dispatch and restore distribution performance. Excess expensive generation relative to paying demand can coexist with inadequate networks; project appraisal must distinguish between the two problems.

Generation capacity expanded faster than the networks needed to evacuate and deliver power efficiently. The priority now is to repair existing plants, remove transmission bottlenecks, improve dispatch and restore distribution performance.

Energy productivity is another neglected asset. A June 2025 World Bank assessment cites energy intensity of 4.2 megajoules per dollar of GDP for Pakistan, against 1.9 for Bangladesh and 1.7 for Sri Lanka. It also identifies gains from better motors, boilers, compressors and waste-heat recovery. Such measures can cut production costs and imported fuel, although appraisal must deduct imported equipment and recognise that electricity savings do not erase contracted capacity payments.

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Pakistan already has the outline of an enforceable efficiency programme. NEECA’s policy framework provides for minimum performance standards and mandatory audits of designated industrial consumers. Implementation should require independently verified audits and time-bound improvement plans for large users, sector benchmarks, tested equipment standards and enforceable building codes. Public procurement and project approval should compare lifecycle energy costs and show that refurbishment or efficiency cannot meet the need more cheaply. The lesson extends beyond energy. Pakistan can pursue growth now through competitive energy pricing, functioning markets, trade facilitation, predictable regulation and better use of existing networks. In its 2023 productivity assessment, the World Bank called for resources to move towards manufacturing and tradable services rather than real estate and other non-tradable activities, and for trade policy to reduce its anti-export bias. Those reforms do not require waiting for the next motorway.

Agriculture offers a more direct route from investment to tradable output. Better seeds, agronomy, animal health, water management, storage and export handling can raise saleable production on an existing base that the Economic Survey 2025–26 puts at about 23.4 per cent of GDP. World Bank data sourced from FAO show the opportunity: Pakistan’s 2023 cereal yield was 3.63 tonnes per hectare, below the world average of 4.23, Bangladesh’s 5.32 and Egypt’s 7.36, though slightly above India’s 3.60. Cotton makes the cost of neglect painfully concrete. Figures in the Economic Survey 2025–26 show output falling from 10.22 million bales in FY2024 to 7.08 million in FY2025, a decline of about 31 per cent. Cultivated area fell from 2.424 million to 2.043 million hectares; calculated from those figures, yield per hectare dropped about 18 per cent. Both shrinking acreage and lower productivity mattered. FY2026 brought only a marginal yield recovery, with output still around 7.05 million bales. The country has allowed the agricultural base of its leading export industry to weaken.

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The foreign-exchange consequences are substantial. The PBS merchandise-trade figures reproduced in the State Bank’s FY2025 annual report show raw-cotton imports rising from $448 million in FY2024 to $1.642 billion in FY2025—an increase of approximately $1.19 billion. That is additional pressure on the trade account, not a calculation of the entire balance-of-payments effect: imports also respond to textile demand, stocks and prices. Nevertheless, the production shortfall forces mills to source abroad material that a stronger domestic cotton sector could supply competitively.

Cotton shows why investment must protect the productive base of tradable sectors. The same principle applies to perishables: targeted investment in post-harvest systems can reduce losses, increase saleable output and help producers meet export standards. A dependable cold chain—pre-cooling, hygienic packhouses, grading, refrigerated transport, storage and uninterrupted port handling is one such investment. ADB’s horticulture analysis identifies weaknesses across storage, transport, packaging and finance. But public support and private capital should follow credible throughput, traceability, certification and confirmed buyers. The case is for investment in a complete export system, not an isolated facility.

These examples point to a broader investment test. The issue is not simply whether an individual road, power plant or cold-storage facility succeeds, but whether foreign-financed infrastructure leaves the state with enough fiscal space for essential services. In Laos, the World Bank’s October 2024 monitor put public and publicly guaranteed debt at 108 per cent of GDP at end-2023, rising to 116 per cent when specified arrears and a swap arrangement were included. Debt service after deferrals absorbed 57 per cent of domestic revenue. Its railway and energy investments offer benefits, but these economy-wide liabilities cannot be attributed to any one project. The consequence was sharply reduced fiscal space: combined public health and education spending fell from 4.9 per cent of GDP in 2013 to an estimated 2.3 per cent in 2023.

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There is no official count of debt crises caused by unnecessary infrastructure, and such crises rarely have a single cause: commodity shocks, pandemic borrowing, commercial bonds and weak revenues often matter more. But the pattern is well documented across cases such as Sri Lanka, Laos, Montenegro, Kenya and Zambia. Projects were frequently sized around optimistic forecasts rather than how people and firms actually move, settle and pay. The shared error was behavioural as much as financial: ports assumed traffic that did not arrive, railways and highways assumed demand that fell short, and power projects assumed buyers or revenues that materialised too slowly. When those assumptions failed, the debt remained.

Pakistan’s greater development emergency is the condition of its people. The World Bank’s 2023 Human Capital Review reported an index of 0.41 for Pakistan, against 0.46 for Bangladesh, 0.49 for Nepal and a South Asian average of 0.48. The index estimates future worker productivity relative to complete education and full health; it is not a direct GDP forecast. Primary healthcare, nutrition and education—particularly for girls—build capabilities that roads cannot substitute for.

This is not a choice between people and the water systems, clinics or digital networks they need, but about purpose and sequencing. Fund nutrition, learning and healthcare together with the infrastructure required to deliver them, and protect staffing, supplies and maintenance over the full operating life. A hospital without nurses and medicines is another monument to the confusion between construction and development. That confusion reflects a failure of public investment management. When prestige construction advances while learning, health, agricultural productivity and maintenance are neglected, planning bodies are processing projects rather than ranking competing uses of scarce public resources.

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Every major proposal therefore needs two tests: a credible economic and social return, and a credible foreign-exchange plan. Appraisals should publish realistic estimates of demand, maintenance, imported operating costs and debt service; quantify additional export receipts or import savings; and assess the combined national burden. Where feasible, domestic revenues should support domestic-currency finance. Foreign loans can still fund high-value investments on sustainable terms, but social value does not cancel currency risk, and a sovereign guarantee does not create dollars. Pakistan need not stop building to progress. It must first make existing assets work, remove specific constraints and invest seriously in its people. Before borrowing for the next project, policymakers should ask three questions: who benefits, is there a cheaper alternative and where will the repayment dollars come from?

The writer served as the Deputy Chairman of the Planning Commission. X: @nadeemhaque; YouTube: @SiaLytics and Substack: Aid, Policy and Growth.