Pakistan has once again averted economic collapse by clutching at an International Monetary Fund lifeline. The IMF’s Executive Board has approved a fresh $1.2?billion disbursement for Islamabad, prompting government celebratory statements about “resilience” and a “strengthened economic position.” An IMF official even hailed Pakistan as a “very good example” of reform and resilience.
Yes, the bleeding has been stanched. For now. Key economic indicators show momentary improvement. Pakistan ran a primary budget surplus of 1.3% of GDP in FY25, and its foreign exchange reserves climbed to $14.5?billion from just $9.4?billion a year earlier. Inflation, which averaged a punishing 23% last fiscal year, has sharply come down to single digits. These gains, however, came at the cost of drastic austerity and painful sacrifices by the public. Growth remains anaemic and the IMF projects GDP will inch up to only 3.2% by 2026, barely on par with Pakistan’s fast-growing population. That means average citizens will feel no real improvement in their incomes or livelihoods. Unemployment is expected to decline only marginally, from 8.3% to 7.5% in two years. Public debt still hovers above 70% of GDP, a colossal burden that belies any premature victory laps.
Meanwhile, officials are busy patting themselves on the back. Prime Minister Shehbaz Sharif called the IMF’s payout “proof that Pakistan is making progress.” The finance minister lauded Islamabad’s ability to withstand the recent flood disaster without immediate external help. Such self-congratulation is misplaced. Pakistan “withstood” the floods largely because of emergency IMF support and the populace’s own resilience under hardship. The Fund itself has warned that entrenched elites in sectors like sugar, real estate, agriculture and energy continue to “undermine the country’s reform trajectory.” To put it simply, powerful interests still hoard privileges at the expense of the people. No amount of praise changes that underlying dysfunction.
What comes next will determine whether this bailout is merely another temporary reprieve or a turning point. The IMF has handed Pakistan a to-do list spanning the entire policy spectrum: broaden the tax base, fix the energy sector, privatise moribund state enterprises, and strengthen governance. These reforms have been touted for years, yet successive governments ducked the hardest choices until crisis struck. Now that default has been staved off, will Islamabad’s resolve fizzle? The real test will be in turning these commitments into tangible economic recovery. There is little margin for error. Any backsliding on fiscal discipline or pandering to populism could land the country back on the edge of insolvency. The public, having endured record inflation and joblessness, will not tolerate being told to tighten belts indefinitely while the well-connected enjoy impunity. A foreign loan may keep the lights on a while longer, but it is no substitute for genuine reform and homegrown prosperity. *