<p>Despite its benefits, knowledge-driven economic transformation has been overlooked by developing nations, and often characterized economic change as industrialization. However, scientific research raises the question of whether governments can quickly transition to a knowledge-based economy (KE) to meet sustainable development goals (SDGs) if they persist in implementing knowledge management practices (KMP) within organizations. KMP does increase organizational performance and innovation in low-growth, skill-deficient countries, but its effect on KE is questionable. Thus, we explore the pathway to KE and KMP’s predictive function in a moderated-mediation model of organizational learning (OL) and employee cynicism (EC). The negative impact of EC on KE underscores the urgency of addressing this issue. To better understand the mechanism, we examine SME perspectives in Pakistan using deductive and cross-sectional study designs. This is a significant oversight because transferring KMP originally developed for larger firms to SMEs is not fitting. AMOS and Process Macro were used to test the study’s hypotheses using covariance-based structural equation modeling and OLS regression to examine direct, mediational, and moderated-mediational relationships. The results demonstrate that KE development requires KMP, OL, and the absence of EC. In particular, KMP and KE have a significant direct relationship. Additionally, OL positively mediates this relationship. The third result indicates that EC has a negative moderating effect on KE. Finally, conditional effects demonstrate a paradoxical pattern. There is a significant negative relationship between KE and lower and mean EC. An insignificant relationship exists with higher EC levels. This insight contributes to an important understanding of the efficacy of EC as an anti-knowledge economy tool.</p>