Addressing the closing session of the Pakistan Policy Dialogue recently, the Deputy Prime Minister and Foreign Minister observed that the ongoing USD 7 billion, 36-month Extended Fund Facility (EFF) programme approved by the International Monetary Fund (IMF) Board in October 2024, is widely perceived as anti-growth. Explaining his concern, he noted that a projected economic growth rate of 2.6 percent would effectively translate into zero or even negative growth when viewed against Pakistan’s annual population increase of 2.55 percent, according to the 2023 census.
Several eminent economists have repeatedly pointed out that the severely contractionary monetary and fiscal policies agreed with IMF staff are significantly damaging Pakistan’s economy. According to them, the macroeconomic framework adopted under the IMF programme has contributed to a decline in industrial activity. These policies have led to the closure of more than 150 textile units and the exit of several long-standing multinational companies from Pakistan. As a result of the economic slowdown, foreign direct investment (FDI) has also declined. Official figures show that FDI stood at USD 2,489.7 million during July–June 2024-25, a figure that compares unfavourably with India’s USD 81 billion during the same period.
Pakistan’s economic relationship with the IMF has been long and controversial. Over the past several decades, the country has approached the Fund more than twenty times, usually during periods of acute economic stress. This repeated dependence raises a fundamental question: is the IMF helping Pakistan achieve sustainable growth, or is it inadvertently holding it back? With more than 20 IMF programmes since 1958, Pakistan is among the Fund’s most frequent borrowers. This record forces an uncomfortable reality check—whether the IMF is rescuing Pakistan or quietly trapping it in a cycle of dependence.
Undeniably, the IMF has repeatedly helped Pakistan avoid economic collapse. However, emergency rescues have rarely translated into lasting recovery. IMF programmes demand strict fiscal discipline, something Pakistan’s political economy has struggled to deliver. Chronic budget deficits are fuelled by weak tax collection, untargeted subsidies, and loss-making state-owned enterprises. Pakistan’s tax-to-GDP ratio remains stagnant at around 9 to 11 percent, among the lowest in comparable economies. Although each IMF programme prescribes structural reforms, these are often implemented half-heartedly or reversed under political pressure.
IMF conditionalities—particularly higher taxes and increased utility charges—have placed a heavy burden on ordinary citizens. Measures such as cutting fuel and electricity subsidies, raising indirect taxes, and adopting a market-based exchange rate have repeatedly triggered inflation and sharply increased the cost of living. Electricity tariffs surge, transport costs rise, and real incomes shrink, especially for the salaried middle class and the poor. Economic growth slows, development spending is curtailed, and public frustration intensifies.
Not surprisingly, critics frequently hold the IMF responsible for these hardships. They argue that while the Fund compels governments to raise taxes, it fails to ensure restraint in elite privileges or unnecessary administrative expenditure. What ultimately turns IMF assistance from support into a hindrance is its failure to strictly condition lending on the implementation of fundamental reforms—such as energy sector restructuring, privatisation of state-owned enterprises, and expansion of the tax base—within a defined timeframe. Due to high energy costs and heavy taxation, Pakistan’s exports remain stagnant at around 10 to 12 percent of GDP, far below regional peers. The IMF’s primary focus remains stabilisation rather than growth.
Despite some short-term benefits, IMF programmes carry serious drawbacks. Austerity measures tend to slow economic growth in the short run, fuel inflation, erode purchasing power, and increase unemployment. These consequences disproportionately affect the poor and middle class, deepening inequality and social discontent.
Another major criticism is the IMF’s one-size-fits-all approach. Economic prescriptions designed for global application often fail to account for Pakistan’s unique social, political, and structural realities. As a result, reforms frequently trigger social unrest and political instability, undermining long-term implementation.
Perhaps the most damaging outcome is Pakistan’s recurring dependency cycle. Instead of using IMF programmes as opportunities for deep structural reform, successive governments have treated them as temporary fixes. The IMF, however, has rarely pressed Pakistani authorities on why core issues—such as a narrow tax base, failing state-owned enterprises, weak exports, and governance failures—remain unresolved. Consequently, Pakistan is forced to return to the Fund time and again.
In essence, the IMF acts as a stabiliser rather than a provider of a tailored development model. When Pakistan uses IMF funds to postpone difficult decisions, the Fund becomes a crutch. When reforms are diluted or reversed, another crisis becomes inevitable. The IMF cannot absolve itself of responsibility in this recurring failure.
The IMF must ask Pakistan why it continues to need its assistance and why the prescribed solutions fail to deliver long-term results. The harsh reality is that the IMF alone cannot resolve Pakistan’s economic crisis. A durable solution must come from within—through political consensus on taxation, energy reform, export-led growth, and improved governance.