This paper revisits the identification of the binding constraints to investment and growth in
Pakistan by rigorously applying the growth diagnostic framework. It has a central finding:
Pakistan’s economy faces two major groups of constraints—emerging and structural. The
emerging constraints include infrastructure (energy) deficit, high macro-fiscal risks, and
inadequate international financing (high country risks and low FDI inflows). The structural
binding constraints that persistently affect prospects of sustainable growth in Pakistan are
low access to domestic finance, high anti-export bias, bad taxation system, micro risks (bad
governance, excess business regulations, and poor civil service) and slow productive
diversification.