Pakistan’s IT Sector Faces Growth Barriers: Ministry Report Reveals Policy, Resource, and Infrastructure Challenges

In a recent report submitted to the federal government, Pakistanโ€™s Ministry of Information Technology and Telecom documented substantial hurdles holding back the growth of Pakistanโ€™s IT and IT-enabled services (ITeS) sector. From policy inconsistency to infrastructure gaps, the report highlights the obstacles that are hindering Pakistanโ€™s path toward a stronger digital economy. Letโ€™s delve into the key challenges Pakistanโ€™s IT sector is facing.

Key Challenges Facing Pakistanโ€™s IT Sector

1. Policy Inconsistencies and Taxation Hurdles

One of the most critical concerns emphasized in the report is the inconsistency in government tax policies, especially the frequent shifts in tax exemptions and tax regimes. The lack of stability in these policies has affected both investors and local IT businesses. Regular changes influence freelancers and IT businesses. Moreover, it weakens their confidence in the sector. The ministry highlighted that the unpredictability hampers companies from fully using Pakistanโ€™s formal banking channels for IT export earnings.

2. Banking and Financial Barriers

The report also highlights restrictive banking policies that problematize foreign transactions for IT exporters. In response, many IT businesses favor retaining earnings abroad, declining the amount that reaches Pakistanโ€™s remittance inflows. No doubt, the recent policy adjustment allowing limited equity investment abroad offers some relief, but additional steps are necessary to promote sectoral growth.

3. Limited Travel Flexibility

Pakistanโ€™s existing travel policies are occasionally restrictive for IT professionals. They also restrict inbound and outbound client interactions. The ministry stated that international business development and project work need smoother cross-border travel to secure investments and boost partnerships.

4. Skills Gap in the IT Workforce

Despite a significant number of IT graduatesโ€”around 75,000 annuallyโ€”only about 10% are employable for export-oriented roles. This skills gap mainly originates from outdated or inadequate training programs that fail to equip graduates with appropriate technical expertise. This shortfall hampers productivity and hinders firmsโ€™ ability to meet international standards. Moreover, it prevents Pakistan from becoming a competitive player in the global IT market.

5. Infrastructure Deficiency

Access to tech-ready infrastructure is another area of concern especially in secondary cities. The limited availability of reasonable technology parks or co-working spaces in these regions limits the ability of IT firms to scale. Therefore, opportunities for growth and job creation in underdeveloped areas are being missed.

6. Lack of Capital for SMEs

The ministry also highlighted the shortage of funding options for small and medium enterprises (SMEs) within the IT sector. Without sufficient access to capital, SMEs work hard to expand and capitalize on new markets, dousing the broader potential for industry-wide growth.

National AI Policy and Marketing Needs

The report emphasizes that Pakistanโ€™s National AI Policy has yet to see progress, as it has been staying in draft status since last year. Given the transformative potential of AI, revving its adoption is crucial for boosting Pakistanโ€™s IT sector. On the international front, the ministry underlined the need for enhanced global marketing. Pakistanโ€™s IT and ITeS sector struggles to promote itself as a competitive outsourcing destination due to lack of sufficient funding for business development.

Signs of Growth Amidst Challenges

Despite these challenges, Pakistanโ€™s IT and ITeS sectors attained a 24% rise in export remittances, totaling $3.223 billion in FY2023-24. This growth highlights the sectorโ€™s potential. However, it also stresses that long-term fiscal incentives are crucial to encourage IT companies to bring more foreign earnings into Pakistan, helping to appease national fiscal pressures.

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Laiba Mohsin

Laiba is an Electrical Engineer seeking a placement to gain hands-on experience in relevant areas of telecommunications. She likes to write about tech and gadgets. She loves shopping, traveling and exploring things.

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