After two years of unremitting recession-cum-depression, the economy has at last begun to move in the right direction. According to the Finance Ministry’s publication entitled “Economic Update and Outlook,” Pakistan’s economy has demonstrated sustained recovery during the first quarter of FY2025. This is proved by substantial improvement in four key macroeconomic indicators.

The first piece of good news is an 8.5 percent rise in exports rose by 8.5 percent although imports also went up by 19.4 percent indicating greater inflow of essential raw material inflows to boost production in the large scale manufacturing sector (LSM). At the same time the country registered a current account surplus which is a good sign for the economy.

Next is a welcome rise in remittances which registered a jump of 38.8 percent during July-September 2024 as compared to the same period a year before. However, on a month-to-month basis, remittance growth slowed down in September 2025 to 29 percent compared to September 2024.

During the period under review, tax collection also registered an increase. There was an impressive 32.7 percent rise in Federal Board of Revenue intake in September compared to the same month last year and by 25.5 percent July-August this year compared to these two months last year. It may be mentioned here that the target was achieved against the background of 40 percent higher tax collection agreed between the authorities and the International Monetary Fund. But our taxation structure is as skewed as there is more reliance on indirect taxes estimated at around 75 to 80 percent) whose impact on the poor is greater.

Another achievement worth mentioning here is a fall in inflation which has come down to a single digit. Some experts do not accept the official statistics at their face value but it cannot be denied that the price situation is not as bad as it was a year ago. The government has also achieved the first fiscal surplus in 24 years which is something of a record. According to the fiscal operations report for the first quarter (July-Sept) of the current fiscal year, the central bank posted an all-time high surplus of Rs2.5 trillion, This surplus has come on the back of unprecedented SBP profits in consequence of the highest-ever interest rates  in the country’s history.

But while we talk of signs of recovery, there is a need to balance the picture by taking cognizance of some palpable downside risks. One of these is the rising burden of indebtedness which saps the productive capacity of the economy. Our domestic and foreign loans are now touching unsustainable levels and most of our annual revenue is consumed by rising debt servicing charges. Equally worrisome is the state of the energy sector whose working has been totally disrupted by circular debt estimated at 2.6 trillion rupees currently.

On the other hand, the government’s current expenditure continues to rise unchecked. The expenditures grew by 3.1 percent, totalling 16635.5 billion rupees in July-August this year as compared to 15855.7 billion rupees in the same period of last year. It is relevant to take notice in this context of the recent reports of  ratings agencies Moody’s and Fitch which have warned that a new round of difficulties for Pakistan has started with the new EFF (Extended Fund Facility) approved by the IMF which has emphasised the need for additional taxation measures. There are reports that the International Monetary Fund is demanding a mini-budget after the FBR failed to achieve tax targets for the first quarter. According to media reports, the Finance Ministry has started preparations to introduce a mini-budget worth Rs500 billion in the next few months.

The IMF is a hard taskmaster and it will not relent until the government does the needful. This means a new round of taxation measures which will pulverise the low income groups. The main target will be a small group of professionals, especially the salaried class who regularly pay their taxes.

The time has come for the government to set its house in order. It cannot go one squeezing the middle classes without a severe social backlash. Instead, it should go after the feudals who own large tracts of land without paying their due share of taxes. It is also time the government curtailed its current expenditure and withdrew the generous perks allowed to the higher bureaucracy in the form of free petrol, electricity and travel. Last but not the least, the entire energy sector should be restructured and revamped to stamp out corruption and inefficiency which led to the piling up of billions of rupees in circular debt and payment of capacity charges to the IPPs, which have proved to be free loaders of the worst type. What we are witnessing is a kind of economic emergency which calls for emergency measures to extricate the country from the current crisis.