Pakistan’s business environment is becoming steadily more expensive compared to neighboring South Asian economies, a trend that is discouraging entrepreneurship and quietly shifting a growing share of the workforce toward salaried employment, according to findings highlighted by Nikkei Asia.
Citing recent private research by Pakistan Business Forum (PBF), Nikkei Asia reported that operating a business in Pakistan costs around 34% more than in regional peer markets. Ahmed Jawad, chief organizer of PBF, shared that the assessment was based on industrial data available through December 2025 and pointed to multiple structural pressures that have compounded over time. Energy and fuel expenses remain among the largest burdens, with an additional petroleum development levy of about 80 rupees per liter driving up transportation and logistics costs across supply chains. Interest rates are also elevated at around 12.5%, nearly double the 6% to 7% range typically seen in neighboring countries, making borrowing for expansion or working capital significantly more expensive for small and medium enterprises. Electricity tariffs average about 34 rupees per unit, compared with roughly 17 rupees regionally, squeezing manufacturers and service providers that depend heavily on power.
The depreciation of the rupee has further intensified the cost structure. Nikkei Asia noted that the currency weakened from 110.7 per dollar in January 2018 to around 280 per dollar by December 2025, sharply raising the price of imported equipment, raw materials, and technology inputs. On top of this, companies face an effective tax burden that can climb to nearly 55%, substantially higher than many competing markets. Bilal Gilani, executive director of Gallup Pakistan, told Nikkei Asia that policy choices have also contributed to rising input costs, particularly trade restrictions that limit access to cheaper imported goods. Instead of sourcing competitively priced materials globally, firms often rely on more expensive domestic alternatives, which reduces efficiency and margins. He added that Pakistan’s perception as a higher-risk jurisdiction due to terrorism concerns, money-laundering scrutiny, and geopolitical tensions means businesses must comply with heavier licensing, certification, and due diligence requirements, raising fixed costs especially for exporters and technology-focused firms.
These pressures are already visible in the country’s export performance and industrial base. Nikkei Asia reported that exports have struggled to maintain consistent growth since 2021, with hundreds of medium-sized textile businesses shutting down in recent years. Textiles remain Pakistan’s largest export segment, contributing roughly 60% of total overseas shipments in fiscal year 2024, making the sector particularly vulnerable to rising production costs. Industry representatives have urged the government to respond with regionally competitive electricity pricing and more balanced corporate taxes. PBF has written to Prime Minister Shehbaz Sharif outlining these recommendations and calling for reforms aimed at restoring competitiveness. At the same time, Gallup Pakistan’s household income and expenditure data shows a broader labor market shift, with salaried employees now accounting for 60.1% of the workforce, up from 53.4% in fiscal 2010–2011, while self-employment has declined to 21.8%.
Individual experiences reflect these statistics. Nikkei Asia cited a business graduate in Islamabad who abandoned plans to open a restaurant after navigating repeated visits from multiple government departments and complex compliance procedures, eventually opting for a job instead. Independent economist Niaz Murtaza told Nikkei Asia that high operating costs, bureaucratic barriers, limited access to finance, and ongoing political and economic uncertainty continue to discourage small enterprises. Gilani also pointed to gaps in the education system, noting that students are often prepared for employment within established organizations rather than trained to take entrepreneurial risks. Together, the data and on-ground accounts suggest that Pakistan’s elevated cost structure and regulatory hurdles are steadily reshaping how people participate in the economy, with fewer opting to start businesses despite growing demand for innovation and private sector growth.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem.