IMF Support and Program Status
Pakistan entered a 37-month $7 billion Extended Fund Facility (EFF) program with the IMF in September 2024 and continued with a linked Resilience and Sustainability Facility (RSF) totaling around $1.4 billion. As of May 2025, the IMF approved the first review, authorizing about $1 billion, and lauded Pakistan’s “strong” reform progress. The IMF confirmed in their press release that Pakistan has met all performance criteria, validating the disbursement of funds. A mission concluded in May 2025 reiterated Pakistan’s commitment to sustaining fiscal consolidation, rebuilding reserves, and maintaining a primary surplus of around 1.6 percent of GDP in FY26.
Source: IMF
Macroeconomic Trends: A Mixed Picture of Progress and Vulnerability
Pakistan’s macroeconomic indicators in FY2025 reflect significant stabilization gains, particularly when compared to the crisis-ridden years of 2022–2023, but the recovery remains fragile and uneven across sectors.
Inflation
One of the most notable achievements has been the dramatic decline in inflation. Headline inflation, which had soared to nearly 40% in mid-2023, plummeted to just 0.3% in April 2025, according to the Ministry of Finance and corroborated by KPMG and IMF data. This sharp deceleration was driven by aggressive monetary tightening by the State Bank of Pakistan (SBP), improvements in food supply chains, and a more stable exchange rate. However, the trend slightly reversed by May 2025, with inflation rising to 3.5%, primarily due to seasonal pressures and fuel price adjustments. Nonetheless, inflation appears to be stabilizing within the 3–4% range, indicating restored price stability that aligns with SBP’s medium-term target.
GDP Growth
In terms of output, Pakistan’s economy grew by 2.7% in FY25, up slightly from 2.5% in FY24, though still below the initial 3.6% target. While this reflects a modest recovery, it falls short of the pace needed to absorb labor market entrants or meaningfully reduce poverty. According to the IMF’s projections, FY26 GDP growth is expected to accelerate to around 3.6%, assuming continuity in reforms, fiscal stability, and improved investor sentiment. Much of this future growth is expected to come from the agriculture sector, digital exports, and moderate industrial rebound.
Current Account and Foreign Reserves
A significant reversal was achieved in the external account. Pakistan posted a $1.9 billion current account surplus during July–April FY25, compared to consistent deficits in the past five years.
Source: Ministry of Finance
Reuters reported this improvement was fueled by a sharp drop in imports, record-high remittances, and a modest recovery in exports, particularly in IT services. Foreign exchange reserves also improved markedly. From a precarious low of $9.4 billion in August 2024, gross reserves climbed to over $16.6 billion by mid-FY25, aided by multilateral inflows and a key $3.4 billion loan rollover from China.
Source: Reuters
Fiscal Performance
The government has shown greater fiscal discipline than in recent years. During the first nine months of FY25 (July–March), a primary budget surplus of 3.0% of GDP was recorded, double the 1.5% surplus of the previous year. The overall fiscal deficit is now estimated at 2.6% of GDP, a notable improvement from double-digit deficits seen just three years ago. These numbers signal credible efforts to meet IMF targets, though long-term success depends on maintaining discipline without compromising development and social spending.
Structural Reforms and the Uraan Pakistan Vision (2024–2029)
Pakistan’s reform agenda has become more structured with the introduction of the Uraan Pakistan five-year economic plan, which lays the foundation for a post-IMF growth model.
Privatization and Public Sector Reform
Under the plan, more than 50 state-owned enterprises (SOEs) excluding strategic assets such as defense or utilities are slated for phased privatization by 2029. This marks a significant shift from past approaches where SOE reform was repeatedly delayed. The aim is to reduce fiscal drain, attract private capital, and improve operational efficiency. Alongside this, comprehensive SOE governance reforms are being implemented, including performance benchmarking, independent boards, and streamlined procurement procedures.
Taxation and Energy Sector Reforms
Finance Minister Muhammad Aurangzeb has led a more technocratic, data-driven approach to tax reform, drawing on his experience at HBL and JPMorgan. New measures include digitizing tax filing, reducing exemptions, expanding the GST net, and targeting under-taxed sectors like real estate and retail.
Source: Profit
Energy pricing reforms, especially the shift toward cost-reflective tariffs, have also begun, aiming to reduce circular debt and create space for renewable investment. These steps are aligned with IMF structural benchmarks and are integral to long-term fiscal stability.
Uraan’s Strategic Pillars
Launched in December 2024, Uraan Pakistan focuses on five pillars:
- Price stability and inflation control
- Strengthening the current account and reserves
- ICT-led export diversification
- Infrastructure modernization
- Climate adaptation and disaster resilience
Together, these pillars are designed to transition the economy from crisis-response to long-term competitiveness.
Beyond Bailouts: Strategies for Sustainable Growth
Pakistan’s ability to thrive post-IMF will depend on its capacity to finance growth without accruing more external debt. This shift requires diversified financing, deeper institutional reforms, and credible macro management.
Attracting Non-Debt-Creating Inflows
Pakistan is increasingly turning to foreign direct investment (FDI) and equity-based Gulf funding through initiatives like the Special Investment Facilitation Council (SIFC) and the Pakistan Sovereign Wealth Fund. In early 2024, FDI grew by 17% to reach $1.9 billion, with major interest in energy, minerals, and telecom. Simultaneously, remittances surged to $31.2 billion, showing a year-on-year increase of 31%, while ICT exports reached $2.8 billion, up 23.7%, reflecting the growing global competitiveness of Pakistan’s digital workforce.
Maintaining Fiscal Credibility
Experts caution against reverting to unsustainable subsidies or populist spending. Critics have likened past IMF reliance to a “morphine-style” economic sedative, providing short-term relief without addressing root causes. To break this pattern, Pakistan must sustain fiscal prudence and adhere to a primary surplus target of 1.6% in FY26, while protecting social sector investments.
Smart Monetary Policy
The State Bank of Pakistan has reduced the policy rate by 1,100 basis points, from 22% to 11%, in response to easing inflation. However, further rate cuts will need to be calibrated carefully to avoid reigniting inflation or pressuring the rupee. A temporary pause at 11–12% is expected to allow macro variables to settle before easing resumes.
Boosting Productivity and Competitiveness
Sustainable growth hinges on lifting productivity across sectors. This includes:
- Completing SOE privatization
- Implementing competitive energy pricing
- Expanding digital literacy and vocational training
- Improving export logistics and trade facilitation
- Strengthening institutions to improve investor confidence
These reforms are embedded within both the IMF program and the Uraan Pakistan framework, and their successful implementation is vital to moving away from debt dependency and toward inclusive, resilient growth.
Key Economic Risks and the Road to Sustainable Growth
As Pakistan moves into the post-IMF era, several significant risks could threaten its hard-won macroeconomic stability. On the global front, heightened geopolitical tensions and rising commodity prices, especially for oil and food, pose a serious challenge. Any tightening of global financial conditions could reverse the gains in foreign reserves and reignite inflationary pressures, especially in a country still recovering from past economic shocks.
Domestically, political uncertainty remains a persistent vulnerability. A lack of political consensus or weakening commitment to fiscal reforms could undermine investor confidence and stall progress on critical structural changes. Furthermore, Pakistan continues to rely heavily on bilateral debt rollovers; such as the recent $3.4 billion arrangement with China, to manage its short-term obligations. While these rollovers provide breathing space, they do not resolve the underlying structural debt issues and may perpetuate a cycle of dependency.
To mitigate these risks, Pakistan must adopt a disciplined and forward-looking policy approach. Maintaining fiscal consolidation remains essential to keep public debt and budget deficits within sustainable bounds. At the same time, the government should intensify efforts to boost non-debt-creating financial inflows, primarily through increased foreign direct investment (FDI), stable remittance channels, and a sharp focus on export-led growth, particularly in the IT and agricultural sectors.
Structural reform momentum must also continue. This includes broadening the tax base, accelerating the privatization of underperforming state-owned enterprises, enhancing efficiency in the energy sector, and reducing leakages through better regulation and oversight. In parallel, monetary policy should be cautiously managed. While easing interest rates may stimulate demand, the central bank should be ready to pause or reverse rate cuts if inflation or currency volatility resurfaces, preserving external account stability.
Lastly, strengthening institutional capacity is crucial. This means not only improving revenue collection and fiscal transparency, but also building resilient governance systems and expanding social protection to safeguard vulnerable populations during economic transitions. Together, these strategic imperatives will be essential to sustain the current recovery, reduce dependency on international bailouts, and pave the way toward long-term, inclusive growth.
Conclusion: Transitioning from Bailout to Self‑Reliance
As Pakistan nears the conclusion of its IMF-supported stabilization program, maintaining macro stability while fostering growth hinges on decisive policy action. Early successes, taming inflation, stabilizing the current account, and preserving fiscal discipline, have opened a runway. The next challenge is concrete: translating these gains into sustainable growth through structural reform, diversified financing, and prudent macroeconomic management.
A unified strategy, balancing IMF commitments with national initiatives like Uraan Pakistan and deeper private-sector engagement, could mark a transition from crisis management to lasting economic resilience. Without this cohesion, Pakistan risks falling back into volatile cycles of debt dependency. But if momentum is sustained, 2026–27 could usher in a more stable, growth-driven era.
