Rethinking development—IV Asia’s next growth story & Pakistan’s missing foundations

The IMF’s new Asian growth prescription recognises fragmentation, demography, artificial intelligence, industrial policy and declining public trust. Its relevance to Pakistan is undeniable. Lessons drawn mainly from Southeast Asia, however, cannot be transplanted into an economy with low investment, a narrow export base, fractured regional relations and institutions organised to protect incumbents.

Part III argued that a price is a record of power. Production records power no less clearly. Credit, land, energy, tariffs, import permissions, infrastructure and public procurement determine which enterprise can learn, expand and export. Development policy begins before a product reaches the market: it begins with the institutional allocation of opportunity.

The September 2026 issue of the IMF’s Finance & Development deserves a more serious response than habitual denunciation. Gita Bhatt’s editorial presents resilience, inclusive technology and pragmatic regional cooperation as the next sources of Asian growth. It also concedes the decisive political test: growth must yield secure work, upward mobility and trust between State and citizen. That admission brings the argument close to Pakistan’s central problem.

The issue is also intellectually revealing. An IMF platform now carries Ha-Joon Chang’s defence of infant-industry protection and ‘managed trade’, beside warnings about market concentration, precarious work and the unequal gains from technology.

This is some distance from the old formula of indiscriminate liberalisation. The collection is not a single IMF programme—the magazine itself says the authors’ opinions need not represent Fund policy—but it exposes a widening debate that Pakistan must enter with evidence rather than slogans.

Asia is not one economy

Krishna Srinivasan describes Asia as producing nearly 40% of world output and two-thirds of global growth. His analysis identifies slowing productivity, ageing, trade fragmentation, energy insecurity and artificial intelligence as the defining forces.

Deeper regional integration could, on the IMF’s model, raise regional real GDP by about 1.8% in the long run, while AI could add between 0.2 and one percentage point to annual growth in economies with strong fundamentals. These are conditional model results, not automatic dividends. The conditions—skills, infrastructure, capable institutions and firms able to absorb technology—carry the real explanatory weight.

Pakistan begins from a different position. The Pakistan Economic Survey 2025–26 records growth of 3.7%, investment at only 14.38% of GDP and exports of goods and services at 8.93%. Manufacturing and mining jointly account for about 13.5% of GDP.

Even India, whose weaknesses Duvvuri Subbarao examines in the same IMF issue, invests around one-third of GDP. Pakistan’s immediate difficulty is not declining returns to abundant capital. It is inadequate capital formation, weak technological learning and repeated balance-of-payments compression before growth can mature.

A dividend that must be earned

Pakistan is young while much of East Asia is ageing. That difference creates an opportunity, not an entitlement. The latest official indicators report labour-force participation of 46.3%, unemployment of 7.1%, literacy of 63% and 28% of children aged five to sixteen out of school.

Internet use covers 57% of the population. A society carrying these deficits cannot convert population growth into productivity by repeatedly invoking a ‘demographic dividend’. It must first create human capability.

Artificial intelligence illustrates the danger of prescription without sequence. It can help skilled workers and productive firms, improve logistics and widen access to knowledge. It can also concentrate gains among a small urban minority, displace routine service work and enlarge the distance between connected and excluded citizens.

Digital payments reduce transaction costs; they do not by themselves improve a child’s reading, supply reliable electricity, finance a new machine or enable a woman to travel safely to work. Technology complements capability. It does not substitute for it.

Protection without discipline

Chang’s argument is especially important. Korea and Taiwan did not industrialise through autarky, nor through passive free trade. They protected learning, subsidised exports and acquired technology while demanding performance. Alice Amsden, died at 68, called this the discipline of ‘reciprocal control’: support was exchanged for results. Dani Rodrik similarly treats industrial policy as a process of discovering new capabilities, requiring continuing public–private dialogue and mechanisms for withdrawing support from failure.

Pakistan already practises managed trade, but too often it is managed by the beneficiary. Tariff escalation, concessionary credit, tax exemptions, subsidised inputs and regulatory shelter have frequently survived without published obligations concerning productivity, exports, technology, employment or graduation from protection.

The official Tax Expenditure 2026 estimates concessions at Rs. 2.353 trillion for the fiscal year 2024-2025. Not every concession is wasteful; the scientific question is what measurable public return each one purchased. The document supplies categories and costs, but not a beneficiary-level account of results.

A developmental State must be close enough to firms to understand production and autonomous enough to refuse permanent rent. Peter Evans described this balance as ‘embedded autonomy’. Pakistan’s captured State reverses it: access is embedded in networks of power while decision-making lacks autonomy from them. Where one institution dominates representative organs and civilian economic agencies, exceptional forums and negotiated privileges replace general rules. Industrial policy then risks becoming a more sophisticated name for distributing favours.

Regionalism without a region

Bhatt and Ben Bland reasonably look to ASEAN as a source of resilience. Southeast Asia has production networks, institutional continuity and a habit of pragmatic bargaining, even though intra-ASEAN trade remains only about one-fifth of its total. South Asia is further behind. The World Bank continues to report that intra-regional trade is barely 5% of the region’s total, against about 25% in ASEAN, and estimates actual trade of $23 billion against potential of at least $67 billion.

Pakistan cannot obtain the benefits of regionalisation while trade with India remains hostage to confrontation, Afghan transit to instability, and links with Iran and Central Asia to sanctions, insecurity and deficient logistics.

Local-currency settlement and digital payments may reduce transaction frictions, but they cannot substitute for goods to trade, credible contracts and functioning political relationships. Regional integration is not a customs technique. It is a constitutional and diplomatic choice to prefer shared prosperity over the rents generated by permanent hostility.

The Pakistan applicability test

Every imported prescription should be required to answer a Pakistan applicability test. What institutional capacity does it assume? Who controls the instrument? Which interests receive its benefits and who bears its cost? What obligation accompanies public support? Can failure be identified and the privilege withdrawn? Does the policy create exports, technological learning and dignified employment, or merely higher margins and asset values? No programme should proceed until these questions can be answered publicly.

Parliament and the Council of Common Interests should adopt a Productive Transformation Compact rather than another uncosted vision. Building on the capture ledger proposed in Part II and the price ledger in Part III, it should publish every tariff, exemption, subsidised loan, land allotment, energy concession, guarantee and procurement preference, naming its beneficial owner, fiscal cost, performance target and expiry date. Support should be conditional upon independently verified exports, productivity, research, energy efficiency, skilled employment and supplier development. Failure should end it automatically.

The compact must begin with a human-capability floor: universal foundational education, nutrition, primary healthcare, technical training, safe transport, childcare and genuine access for women. Federal responsibility for currency, trade, competition and the national grid must be coordinated with provincial education, health, agriculture and industry.

Elected local governments under Article 140A must provide the urban services, markets, transport and vocational ecosystems within which firms actually operate. Regional engagement should proceed incrementally through trade facilitation, energy exchange, climate cooperation and dependable transit.

Bhatt is right that Asia’s next growth story will require the right policy choices. That formulation postpones the decisive question: who chooses, under what authority and to whose account? In a captured State, even industrial policy, AI and regional corridors can become new portfolios of rent.

Pakistan’s missing foundation is not another plan. It is a constitutional State capable of making privilege conditional, power answerable and public support productive. Asia’s next growth story cannot be imported; Pakistan must acquire the institutions with which to write its own.

References

Amsden, Alice H. 1989. Asia’s Next Giant: South Korea and Late Industrialization. Oxford University Press.

Bhatt, Gita. 2026. “Asia’s Next Growth Story.” Finance & Development, September.

Bland, Ben. 2026. “Thriving in a Fragmented World.” Finance & Development, September.

Chang, Ha-Joon and Bruce Edwards. 2026. “Nurture, Then Prosper.” Finance & Development, September.

Evans, Peter B. 1995. Embedded Autonomy: States and Industrial Transformation. Princeton University Press.

Government of Pakistan. 2026. Pakistan Economic Survey 2025–26: Growth and Investment.

Government of Pakistan. 2026. Pakistan Economic Survey 2025–26: Manufacturing and Mining.

Government of Pakistan. 2026. Tax Expenditure 2026.

Pakistan Bureau of Statistics. 2026. Official Statistical Indicators.

Rodrik, Dani. 2008. “Normalizing Industrial Policy.” Commission on Growth and Development Working Paper No. 3.

Srinivasan, Krishna. 2026. “Asia’s New Growth Challenge.” Finance & Development, September.

Subbarao, Duvvuri. 2026. “Can India Sustain Its Rise?.” Finance & Development, September.

World Bank. Trade: South Asia Regional Integration.

(To be continued)

Dr. Ikramul Haq, Advocate Supreme Court, writer, literary critic, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.