Doing Business In Pakistan 34% More Expensive Than In Regional Peers

The cost of doing business in Pakistan is about one-third higher than in regional peers and the gap appears to be discouraging entrepreneurship and quietly pushing more people toward salaried employment instead of pursuing their own startups, recent private research shows.

Last month, Pakistan Business Forum (PBF), a national organization representing trade and industry, found that operating a business in the country is 34% costlier than in neighboring South Asian countries. Ahmed Jawad, the PBF's chief organizer, shared the findings with Nikkei Asia in an interview on Friday.

Jawad said the analysis was based on industrial data available as of December 2025 and that a mix of structural factors is driving the costs. "Fuel taxes remain high, with an additional petroleum development levy of about 80 rupees ($0.28) per liter, while interest rates are around 12.5%, nearly double the 6 to 7% seen in the region," he said.

He added that electricity expenses average about 34 rupees per unit, compared with a regional average of 17 rupees. The sharp depreciation of Pakistan's currency -- which tumbled from 110.7 rupees per dollar in January 2018 to 280 rupees per dollar in December 2025 -- has made imports far more expensive. "In addition, the overall tax burden can reach up to 55%, significantly higher than in regional economies," he told Nikkei Asia, referring to the effective tax rate for companies.

Bilal Ghani, executive director of research and consultancy firm Gallup Pakistan, said hat input costs have risen largely because of policy choices that restrict competition. "Trade and industrial policies have often protected domestic producers by restricting imports of cheaper foreign inputs," he told Nikkei. "Instead of allowing firms to access globally competitive inputs, businesses are forced to rely on more expensive local alternatives."

He further added that Pakistan is perceived as a high-risk jurisdiction due to terrorism, money-laundering concerns, and geopolitical tensions. Therefore, its firms face far more licensing, certification and due diligence requirements than companies in most other developing countries. "[Those] requirements raise the fixed cost of doing business, particularly for exporters and technology firms," he said.

The costly environment appears to be hurting Pakistan's economy, particularly exports, which have struggled to achieve sustained growth since 2021, as Jawad offering as examples the "hundreds of medium-sized businesses in the textile sector" that have shut down in recent years. "The trade agreement between the European Union and India, which is favorable to India, could further disadvantage Pakistan's textile sector," he added.

That is Pakistan's largest exporting industry, accounting for around 60% of total overseas shipments in fiscal year 2024. In December last year, the PBF wrote a letter to Prime Minister Shehbaz Sharif, asking the government to address the cost of doing business with concrete measures, including regionally competitive electricity tariffs and more competitive corporate tax rates.

In addition to the PBF's analysis, Gallup Pakistan released one covering household income and expenditure last month. It shows that salaried employees now account for 60.1% of the workforce, up from 53.4% in fiscal 2010-2011, while self-employment has remained low at 21.8%, down from 24.4% in 2010-2011.

Ali, a business graduate based in Islamabad who asked that his full name not be used, said he tried to start a restaurant after completing his studies but later abandoned the plan in frustration. "I was hounded by so many government departments that I ultimately decided to give up the idea and started looking for a job," he told Nikkei.

"The cost of doing business is high, which is pushing more people toward salaried jobs, while bureaucratic hurdles, limited access to finance and ongoing political and economic uncertainty continue to constrain small businesses," Niaz Murtaza, an independent economist based in Islamabad, told Nikkei.

Ghani, from Gallup, points toward an educational dimension in which the number of salaried workers in Pakistan is increasing. "Entrepreneurship, risk-taking and opportunity recognition were never meaningfully integrated into higher education curricula in Pakistan. Instead, students were socialized to become efficient workers for large firms and multinationals," he added.

Source: Asia_Nikkei