Pakistan’s industrial collapse deepens: Investment plunges 46% in 6 years amid policy chaos and energy crisis

Pakistan’s manufacturing sector — once touted as the backbone of its economy — is in free fall. Private investment has crashed by a staggering 46 per cent in just six years, exposing the country’s worsening industrial decay.

Analysts warn that Pakistan is staring at long-term industrial disintegration, driven by policy chaos, crippling energy costs, and a collapsing currency.

The crisis threatens exports, jobs, and overall economic stability, laying bare the government’s hollow claims of “economic revival.”

‘Industrial base is disintegrating’

Ali Imran Asif, Senior Executive Committee Member of the Lahore Chamber of Commerce and Industry (LCCI), minced no words: the current level of investment, he said, “is not even enough to replace depreciating machinery.”
“We are not dealing with a short-term dip; we are watching our industrial base disintegrate,” Asif told The Express Tribune. Without deep-rooted reforms focused on productivity, innovation, and competitiveness, he warned, Pakistan could face decades of industrial paralysis.

Despite tall claims of “stabilisation,” the combined contribution of manufacturing and mining to Pakistan’s GDP has stagnated at around 13.2 per cent for six consecutive years — a glaring sign of structural decay.

Policy flip-flops and energy shocks choke industries

Frequent policy shifts, surging power tariffs, and a volatile rupee have battered export-oriented sectors such as textiles, leather, and engineering goods. Official data show that large-scale manufacturing output fell 1.5% in FY25, reversing the 0.92% growth seen in FY24.

Neighbouring countries like India and Bangladesh, meanwhile, continue to surge ahead — powered by policy stability, export diversification, and industrial modernisation.

Economist Shahid Saleem said Pakistan’s slump is “not just about high interest rates — it’s about eroding investor confidence and a government that cannot stick to one policy.”

Import restrictions and weak domestic demand have forced factories to operate far below capacity, he added.

The illusion of progress

Despite government rhetoric about improving foreign ties and stabilising the economy, Pakistan’s large-scale manufacturing (LSM) sector tells another story. Data from the Pakistan Bureau of Statistics show that LSM — which accounts for roughly 8% of GDP and employs millions — contracted 0.74% in the last fiscal year, extending a decline that began more than two years ago.

Economist Dr Naveed Mirza warned that “no country can sustain growth without a strong manufacturing base.” He pointed out that when manufacturing falters, “exports decline, jobs disappear, and consumption replaces production” — a contrast to nations like South Korea, China, and Germany that built prosperity through industrial strength.

Textile sector in tatters

Pakistan’s textile industry, once hailed as its economic lifeline, is now gasping for survival. Mian Sohail Nisar, Patron-in-Chief of the Pakistan Industrial and Traders Association Front (PIAF), said the textile index has remained below 100 for nearly three years, with output levels now lower than a decade ago.

Out of 22 key industries monitored by PBS, nearly half have been underperforming for years. Rampant power costs, erratic fiscal policies, and limited access to raw materials have strangled production.

A warning unheeded

Industrial leaders and economists are urging Islamabad to abandon cosmetic measures and commit to long-term reforms in energy pricing, taxation, and governance. Without urgent structural change, Pakistan’s manufacturing collapse could deepen further — dragging exports, employment, and the entire economy down with it.

For a nation that once dreamed of becoming “the next Asian tiger,” Pakistan’s economic engine is now running on fumes.