Muhammad Khudadad Chattha

Many resource-rich economies face the same structural challenge: how to build a diversified economy when commodity revenues have long dominated government spending and investment. Industrial policy has emerged as a common response — targeted interventions designed to foster new sectors and integrate domestic producers into global value chains. But does it work? And how can governments know whether their choices are having the intended effect?

Note: Graphs taken from Gulf Economic Update, June 2025 edition In 2020, a Medium-Term Fiscal Plan (MTFP) was introduced. The five-year roadmap aimed at redressing public finances and putting the economy on a sustainable fiscal path. The main ideas? Spend smarter not higher; earn broader, not heavier. To contain spending, government hiring was frozen (except for critical jobs), triggering a drop in the public wage bill from 12 percent of GDP to 9 percent.

Fiscal policy is one of the primary macroeconomic instruments available to governments. Its objectives are wide-ranging, spanning all government revenues and expenditures, but one of its core aims is to promote macroeconomic stability, which in turn supports long-term growth. In an ideal scenario, GDP follows a stable, upward trend. In reality, economies experience expansions and recessions (business cycles) that introduce instability.