Pakistan has been dealing with the International Monetary Fund (IMF) for many decades, but a fundamental question persists: has this prolonged partnership truly served the long-term interests of the country’s economy?
Recently, the IMF Executive Board completed the second review of Pakistan’s Extended Fund Facility, approving the release of about US$1.2 billion, including US$200 million under the Resilience and Sustainability Facility. In its assessment, the Fund praised Pakistan’s strong fiscal performance. What remained largely unsaid, however, is the heavy price paid by the formal sector, which has been subjected to near-extortionist tax rates. From the IMF’s standpoint, meeting revenue targets appears to matter far more than broadening the tax base or curbing wasteful and unproductive expenditure.
As is evident, GDP growth has dwindled and the overall economy remains stagnant. The energy sector continues to be the weakest link in the economic chain, yet the IMF, instead of insisting on deep-rooted governance and efficiency reforms, has persistently pushed for repeated tariff hikes. This rising burden has effectively broken the back of the common consumer. Owing to harsh IMF conditionalities, poverty has increased, investment has shrunk, and capital flight from the country has accelerated.
According to many experts, Pakistan has been subjected to unusually tough IMF conditions since 2019, which have created serious domestic and external imbalances, ultimately unhinging the economy. A close analysis of the IMF’s approach shows that while it has helped achieve short-term stability, long-term structural challenges have remained largely unaddressed. The overriding focus has been on averting immediate balance-of-payments crises and achieving macroeconomic stability, with little attention paid to mounting external debt, persistently high inflation, economic contraction, and widespread hardship caused by stringent conditionalities.
Undeniably, IMF programmes have provided much-needed foreign exchange support, with reserves reaching $14.5 billion by the end of FY2025, helping avert balance-of-payments crises and stabilise the currency against external shocks. Conditionalities have also resulted in improved tax collection, with FBR net provisional tax receipts rising by 30.8 percent during July–May FY2024, and the achievement of a primary fiscal surplus of 1.3 percent of GDP in FY2025, thereby strengthening public finances. IMF approval has unlocked additional financing from international partners and improved market confidence, as reflected in credit rating upgrades and declining sovereign spreads. Moreover, IMF programmes have sought to push reforms in areas such as the energy sector, circular debt reduction, state-owned enterprises, and governance, all of which are vital for long-term economic health. Under IMF pressure, through a combination of fiscal tightening and import compression, Pakistan also achieved its first current account surplus in 14 years in FY2025.
Yet, simultaneously, the economy has suffered severe damage in critical sectors, while poverty and unemployment have continued to rise. One of the most significant costs of IMF engagement has been the steady increase in foreign debt and the associated debt-servicing burden. This persistent problem, despite repeated IMF programmes, has continued to stifle national economic growth. IMF-mandated austerity measures, including sharp tax increases and the withdrawal of subsidies, have historically fuelled high inflation—averaging 23.4 percent in FY2024 before easing in FY2025—and slowed GDP growth, which even contracted in FY2023. These measures have disproportionately affected ordinary citizens, with inflation completely disrupting household budgets and pushing millions further below the poverty line.
Currency devaluation is another sensitive issue arising from IMF conditionalities. A market-determined exchange rate, while theoretically aimed at improving competitiveness, has at times resulted in sharp depreciation of the rupee. This has raised import costs, driven up overall prices, and significantly increased the cost of industrial production, rendering Pakistani goods less competitive in global markets.
Furthermore, IMF conditionalities have curtailed the government’s ability to frame and pursue independent economic policies. The Fund’s influence now extends into sensitive domestic sectors such as sugar, power, and even the operational functioning of the FBR. Consequently, successive governments find themselves constrained in rolling out relief measures to ease the burden on the common man or reduce prices.
Despite temporary macroeconomic stability, private investment remains weak due to tight monetary policies and persistently high interest rates, with the six-month Treasury bill rate touching 21.5 percent in FY2024. This has severely hampered sustainable job creation and long-term growth. According to a World Bank report, nearly 50 percent of Pakistan’s population now lives below the poverty line, while unemployment has reached alarming levels. Rising taxes have eroded profitability in the manufacturing sector, and several well-known multinational companies operating in Pakistan have either suspended operations or exited the country altogether.
Economists increasingly argue that the time has come to honestly assess the bitter outcomes of decades-long dependence on the IMF and to shift focus toward developing indigenous resources and solutions to Pakistan’s economic challenges. Experiences from countries across Asia, Africa, and Latin America clearly demonstrate that excessive foreign debt can never be a path to sustainable economic progress. The IMF often resembles an addiction, compelling developing countries to take new loans merely to service old ones, with no durable relief in sight. Learning from global examples, Pakistan must revise its current approach and, by freeing itself from the clutches of perpetual IMF dependence, work toward homegrown and self-reliant solutions for lasting economic stability.