Pakistan's digital transformation hinges on bridging its three-tier digital economy and fostering innovation. Prioritizing education and aligning public values with knowledge are essential for evolving from passive consumption to global innovation leadership.

The digital economy is no longer a distant concept relegated to a far-fetched future but a concept grounded in our immediate present. We live in an era where the digital economy is the economy simply because digital technologies have permeated extensively across all economic sectors. This was the primary realization of my third book, "Public Value and the Digital Economy", where public value creation was recognized as a multistakeholder effort through digital means that required the utmost national attention. For Pakistan, advancing through digitalization and innovation is vital to national development, as there can be no 21^st century development without a robust digital economy and an innovation culture. This has also been recognized in key policy documents of the government as well, such as the National Security Policy (2022) and the Economic Transformation Plan Uraan (2025). 
Given this recognition in government publications, as well as the ground realities of a global economy that is exceedingly digitally-driven and cut-throat in its hunger for innovation, it is worth considering the contours of the digital economy and innovation culture, because they set the stage for Pakistan's national development through public value in this century. The remainder of this article consists of two sections. The first section delineates the digital economy perspective on Pakistan's national development, arguing that we reside in a three-tier digital economy where the lower rungs must be digitalized and brought towards the first tier of high-intensity digitalization. The second section discusses innovation ambition and why the foundations of this must exist before innovation can truly be instilled. Concluding remarks follow. 

For Pakistan, advancing through digitalization and innovation is vital to national development, as there can be no 21^st century development without a robust digital economy and an innovation culture. This has also been recognized in key policy documents of the government as well, such as the National Security Policy (2022) and the Economic Transformation Plan Uraan (2025).

The Digital Economy
In essence, Pakistan is a three-tier digital economy: highly-digital, semi-digital, and non-digital, and they all simultaneously coexist within the same country. In other words, there are highly-digital Pakistanis, mostly middle or upper-middle class and predominantly urban; there are semi-digital Pakistanis, who have partial use of digital platforms as content consumers, even in the absence of full literacy; and there are non-digital Pakistanis, who reside at a subsistence level in conditions too destitute and remote to participate in the digital economy. The essence of the argument here is that semi-digital Pakistanis must migrate towards a highly-digital level, and the non-digital should move towards semi-digital status before eventually arriving at a high-digital level over time.
First, the highly-digital tranche of society exhibits consumption, investment, and production behaviors that closely resemble those of any advanced economy. They use online banking (e-banking) channels, engage in computer-based work (not just in IT but across all service sectors), demonstrate advanced computer literacy, conduct transactions and interact with the global community through online platforms, and stay aligned with global consumer trends via social media. At the most extreme level, the highly-digital may even hold full-time or freelance jobs that produce value for international as well as domestic clients through digital tools; they may invest in instruments such as cryptocurrencies; and, at best, they may even be launching new ventures (startups) with a strong digital bent. Overall, the highly-digital segment of Pakistan is already at the cutting edge and represents the most discussed aspect of the economy. However, they remain comparatively small in proportion to the nation's overall population. This group consists of a young, literate, middle- or upper-middle-class cohort, primarily located in Tier-1 or Tier-2 cities. Naturally, a significant portion of the diaspora can also be included in this category.
Second, the semi-digital tranche constitutes a significant portion of Pakistanis, driven by the rapid expansion of mobile devices over the past 15 years. With 193 million mobile subscriptions reported by the Pakistan Telecommunications Authority (PTA) in 2024, it is crucial to distinguish between "smartphones" and "dumb phones," as the latter does not meaningfully contribute to the digital economy. Despite this limitation, semi-digital users actively engage with social media platforms by consuming vast amounts of local and international content. Even low literacy levels are not a barrier, as apps such as TikTok and WhatsApp (via voice messages) minimize the need for active literacy. This semi-digital demographic spans urban and rural areas, encompassing much of the lower-middle class and poor. While they generate valuable data for international tech platforms, their largely passive engagement limits their direct contribution to Pakistan's domestic digital economy.
Third, and lamentably, there is a third-tier subsistence-level cohort of “non-digital” Pakistanis who are still too economically marginalized by their destitution that their participation in the digital economy is yet to materialize. They do not own smartphones, they are illiterate, and they eke out an existence in conditions too precarious and micro-geographies too remote. They comprise the disenfranchised piece in what is known as the "digital divide," whether as the urban destitute, who do have cellular coverage in theory but scant means to access the digital world or as the rural peasantry, where even cellular coverage does not yet correctly exist.
Here, the crux of a national development perspective on the digital economy lies in moving the semi-digital into the highly-digital and the non-digital into the semi-digital before they, too, move into the highly-digital.
This is the most fitting way to consider how national development materializes through the lens of the digital economy, manifesting in documents of key importance to the state. For example, the Economic Transformation Plan (2025) considers e-Pakistan and digitalization to be of the utmost importance, representing one of the "5E's" of the program itself. Other recent legislation, such as the Digital Nation Pakistan Act, embodies this drive towards the digital economy by embedding the citizen's digital identity as its bedrock. As such, work on the digital economy is promising and can be seen as a migration upwards to higher tiers of digitalization. This, in turn, will drive far greater public value creation in the digital economy.
Innovation
It is one thing to discuss the digital economy, where the previous section highlighted the promising upward migration of digitalization, but it is another matter to address "innovation." While innovation is a popular buzzword, including in the Economic Transformation Plan, it represents a far more complex endeavor than mere digital participation. Middle-class households glued to their phones may be part of the digital economy but are not engaged in technological innovation. Similarly, a teenager using a low-grade smartphone while riding a donkey cart participates in the digital economy but contributes little to innovation. While there is public value in the digital economy, as explored in my previous work, the more excellent public value lies in advancing innovation—a far more challenging objective requiring a shift in societal and institutional frameworks.
The foundations for an actual "knowledge economy" or "innovation economy" are absent in Pakistan. Education must become the nation's highest priority for such an economy to emerge. Teachers must be held in the highest regard, with the most talented individuals choosing the profession as their top career path. This is exemplified by Finland and Singapore, which consistently rank among the top in global education standards, where teaching is a lofty, laudable, aspirational profession. In Pakistan, however, talented individuals gravitate toward bureaucratic or medical careers or migrate abroad. The school system is riddled with absentee teachers in rural areas and poorly trained, often uninterested educators elsewhere.¹
Second, Pakistan must cultivate a literate society. A literate society nurtures the intellectual curiosity inherent in every child through analog infrastructure like libraries and digital resources like indigenous education platforms. Several revolutionary societies, including the USSR (The Union of Soviet Socialist Republics), Poland, Cuba, China, Vietnam, and Iran, achieved universal literacy within a generation by aligning their public values with education, which was done in the pre-digital era. These nations completely transformed themselves in terms of their public values, and in the process, innovation came to be embedded in their public ethos.²
Third, incentivizing education is essential. In Pakistan, individuals who pursue knowledge often do so despite societal obstacles rather than because of supportive systems. To foster a culture of education, concrete rewards must exist for intellectual pursuits. Systemic issues such as nepotism, feudal patronage, and institutional encroachments undermine such incentives. One must be incentivized to pursue education as a reasonable means toward a just end. For example, Pakistan offers only about 400 positions annually that truly reward general knowledge (CSS candidates). Which other professions with sustainable employment intake value general knowledge? Intellectual pursuits remain marginalized without systemic encouragement, and education fails to serve as a vehicle for broader societal transformation. Thus, innovation is not fostered when the incentives are not profoundly aligned with the pursuit of education.
As such, one can herald a digitalizing Pakistan, but one that still engenders passivity of citizens as consumers of a wider feast of entertainment online; but one must be very reticent about the "innovation" element that is being espoused. It implies that we would be at the technological frontier, or very near it, to advance it forward. A public that values education is likelier to arrive at that frontier before taking it forward.
As I recognized in my third book, the digital economy has become an inseparable component of the economy. For countries like Pakistan, embracing the digital economy offers a transformative opportunity to align its national development trajectory with global trends. The stratification of highly-digital, semi-digital, and non-digital tranches reveals both the promise and the challenges of this evolution, and by systematically migrating the semi-digital and non-digital populations into higher tiers, the nation can unlock unprecedented public value, fostering inclusivity and economic growth.
However, the discussion of innovation underscores a more profound challenge. Innovation, often lauded in policy documents, demands a fundamental reconfiguration of public values and institutional priorities. Education must occupy the highest pedestal in national development, nurturing intellectual curiosity and incentivizing the entire pursuit of knowledge. The examples of nations like Finland and Singapore and revolutionary societies that achieved universal literacy within a generation all highlight the transformative potential of embedding education within public values. Without these foundational reforms, Pakistan risks remaining a largely passive consumer of global innovations rather than a contributor or driver of innovations itself.
As such, although the strides in the digital economy are commendable, they must be complemented by a robust knowledge economy. Incentivizing education, aligning societal values with intellectual pursuits, and addressing systemic inefficiencies are imperative steps. Only then can Pakistan transition from a digital economy characterized by passive consumption to an innovation-driven economy that creates public value and positions itself as a leader in the global knowledge ecosystem. Through the pursuit of that sincere ambition, Pakistan can achieve the progress it deserves in the 21^st century.

The author is the Advisor on Economic Affairs and National Development at the Centre for Aerospace and Security Studies (CASS), Islamabad.

1.Chohan, U.W. (2021). Public value and the digital economy. London: Routledge.
2. Chohan, U. W. (2023). Public value and citizen-driven digital innovation: A cryptocurrency study. International Journal of Public Administration, 46 (12), 847-856.
  Despite its post-war devastation, the USSR rivaled the United States for decades and pioneered humanity's journey into space. Cuba has produced remarkable medical advancements, including its COVID-19 vaccine, Abdala, which had a 92 percent efficacy. Iran boasts a 99 percent literacy rate and technological achievements, including aerospace advancements, that are being tested on Ukraine and the Red Sea battlefields. China's innovation engine, meanwhile, requires hardly any elaboration: it now rivals and even surpasses the United States in many advanced technological fields.
3. Chohan, U. W. (2024). Public Choice and Public Value. Discourse: Policy & Research. 24 (2), 59-61.
4.  Government of Pakistan (2025). Prime Minister’s Economic Transformation Plan [Uraan]. Islamabad: Government of Pakistan.
5. Mei, H., & Zheng, Y. (2022). Usman W. Chohan, public value and the digital economy. Global Public Policy and Governance. 2 (4): 346-352.
6. National Security Division (2022). National Security Policy of Pakistan 2022-26. Islamabad: National Security Division.
7. Pakistan Telecommunications Authority [PTA] (2024). Telecom Indicators. Available at: https://www.pta.gov.pk/category/telecom-indicators. November.