The International Monetary Fund is satisfied with the economic performance of Pakistan but beneath measured praise for macroeconomic resilience lies a stark revelation: the nation remains ensnared in a familiar pattern of missed benchmarks, eleventh-hour concessions, and growth-sapping austerity.
The IMF has released its staff report following the approval of the second review under the $7 billion Extended Fund Facility (EFF) and the first under the $1.4 billion Resilience and Sustainability Facility (RSF), Pakistan secured another vital lifeline. The combined $1.2 billion disbursement brought total inflows to $3.3 billion, offering temporary respite amid lingering flood scars and fiscal strains.
Having faltered on 11 prior targets, Islamabad obtained waivers in exchange for a raft of new commitments, underscoring the steep price of continued support in its 24th IMF program. This latest chapter exemplifies the trade-offs inherent in Pakistan’s prolonged dependence on external financing. To plug a Rs104 billion shortfall from the captive power levy, the government pledged to slash electricity subsidies—a move that will likely cascade higher tariffs onto industries and households already grappling with costs double those of regional competitors.
More alarmingly, a Rs430 billion revenue hole in the first five months of FY26 prompted assurances of fresh taxes on pesticides, fertilizers, and premium sugary products. These levies, while aimed at broadening the base, risk inflating agricultural input costs and food prices, threatening yields already battered by climate shocks and exacerbating the 40 percent child malnutrition crisis.
At the core of these fiscal firefights lies the Federal Board of Revenue’s enduring underperformance. Despite ramped-up enforcement on salaried workers and formal businesses—manifest in soaring withholding deductions and audits—collections fell short by Rs428-430 billion in July-November. This gap exposes a deeply skewed tax regime: exemptions and concessions, devouring 4.61 percent of GDP, cocoon influential sectors like real estate, agriculture, and retail, while the informal economy—encompassing 60 percent of activity—largely evades scrutiny. Finance Minister Muhammad Aurangzeb’s contingency plan to defer expenditures amid potential National Tariff Policy fallout revives a decades-old ritual: mid-year development slashes of 20-30 percent, diverting funds from infrastructure and social initiatives that could ignite higher growth. Independent analyses suggest such cuts trimmed 0.5 percent from FY25’s potential, reinforcing consumption-driven fragility over productive investment.
Power sector overhauls highlight the concessions’ sting. Circular debt at Rs2.5 trillion necessitates urgent privatization, with first-round DISCO bidding slated for early 2026 and preparatory work for Hyderabad and Sukkur entities by year-end. Governance vows—disclosing senior bureaucrats’ assets by December 2026 and modernizing SOE legislation by August—seek to stem leakages, yet mirror repeatedly deferred promises, fueling doubts about execution.
Longer-term signals are equally disconcerting. Phasing out incentives for Special Economic Zones and Export Processing Zones by 2035—shifting from profit-based to cost-focused perks—threatens to chill foreign direct investment, already languishing at 0.7 percent of GDP against India’s 2 percent. Pre-pandemic, these zones attracted $2-3 billion annually; their dilution could further deter inflows amid tepid exports, down 6 percent in early FY26. Coupled with farm input taxes, these policies imperil agricultural resilience, with key crop outputs declining 3-6 percent in 2025 due to floods costing $7 billion in damages.
The IMF’s narrative reaffirms Pakistan’s boom-bust affliction: stimulus-fueled demand outstrips supply, ballooning deficits and eroding reserves, while opaque subsidies entrench inefficiency in low-productivity enclaves. Despite FY25’s rare current account surplus and reserves rebuilt to $14.5 billion, FY26’s early reversal signals persistent vulnerability. Growth projections, downgraded to 3.0-3.5 percent amid shocks, fall short of the 6 percent threshold for meaningful job absorption—critical with 2 million youth entering the workforce yearly—or halving 42 percent poverty.
This 37-month engagement, extending to 2027, affords breathing room but at austerity’s expense. The RSF’s emphasis on climate adaptation—disaster coordination and water reforms—tackles acute risks, yet lags in delivery. Waivers for lapsed targets show pragmatism, but the addition of 11 new conditions swells the benchmark tally beyond 60, straining political bandwidth.
Escaping this treadmill demands audacity beyond mere compliance. Equitably widen the net: FBR digitization could unlock Rs2 trillion from retailers and agriculture. Channel subsidy savings—Rs500 billion yearly—into export incentives, trimming energy to 8-9 cents/kWh and lending rates to 10 percent. Expedite DISCO transfers with independent boards targeting 20 percent loss cuts. Domestic resolve—Rs1 trillion current expenditure reductions via pension and luxury reforms—might dilute IMF sway, nurturing true ownership.
Pakistan boasts formidable strengths: a 241 million population, 64 percent under 30; strategic geography; $35 billion remittances. Yet, ensnared in low-growth stasis—with debt servicing gobbling half revenues and investment at 13 percent of GDP—the risk of perpetual bailouts looms. This $1.2 billion tranche stabilizes; frittering it on stopgaps courts the 25th program. As leaders steer these compromises, the fork ahead is unmistakable: champion transformative fairness, or settle for stabilization’s limbo. For citizens battling outages, inflation, and insecurity, the outcome isn’t fiscal jargon—it’s the blueprint for a dignified tomorrow.