Pakistan in late 2025 remains chained to a cycle of borrowing, bailouts, and conditionality-a pattern that has defined its economic life for decades. Despite intermittent signs of stabilisation, the country’s dependence on the International Monetary Fund (IMF) has deepened rather than diminished. The reasons are structural, political, and economic, with data now confirming that what may have once been temporary external support is now essentially embedded into Pakistan’s budget and policy framework.
Public debt – the bedrock of this dependency – stood at an alarming Rs 80.5 trillion by June 2025, having increased by 13% year-on-year. Of this, approximately Rs 54.5 trillion is domestic, while Rs 26 trillion is external. External debt in US dollar terms surged to USD 134.97 billion in Q2 2025, from USD 130.18 billion only three months prior. In rupee terms, external liabilities reached Rs 23.417 trillion, up by Rs 1.663 trillion over the previous year. These figures are not just large; they represent a debt structure that leaves Pakistan especially vulnerable to exchange rate shifts, global interest rate rises, and external market shocks.
Why does this make it hard to break the chain of IMF reliance? First, the lion’s share of government revenues is already swallowed by debt servicing. The federal budget for FY 2025-26 allocates Rs 8.2 trillion for interest and principal payments alone-nearly 46.7% of planned expenditures. Meanwhile, external debt servicing obligations amount to approximately USD 23 billion in the same period. When half the budget is tied up repaying creditors, there is little room left for infrastructure, education, healthcare, or stimulating growth. To divert even modest spending to development, Pakistan must either raise revenues substantially or borrow more-neither of which occurs easily without outside support.
The IMF projects a GDP growth rate of 2.7% for 2025, insufficient to absorb labour force growth, generate high employment, or restore investor confidence in sectors beyond commodities.
Second, growth remains too weak to reduce the debt burden on its own. The IMF projects a GDP growth rate of 2.7% for 2025, insufficient to absorb labour force growth, generate high employment, or restore investor confidence in sectors beyond commodities. Inflation floating near 18%, plus a rupee exchange rate hovering between Rs 280-285 per USD, aggravates both the cost of living and external debt repayments. The weaker rupee increases the local-currency cost of servicing foreign-denominated debt, while inflation squeezes government revenues and increases demands for higher public spending on subsidies and social welfare.
Third, Pakistan’s revenue base is narrow and inefficient. Despite repeated IMF mandates, the tax-to-GDP ratio still lingers below 10%, among the lowest in South Asia. Significant sectors-including agriculture, real estate, and wholesale trade-remain under-taxed or evade compliance. As revenue collection fails to keep up, deficits grow, and the country borrows more. The borrowing commonly comes from short-term debt instruments, possibly at high interest rates. More than 60% of domestic debt is short-term, rolling over frequently. Each rollover carries refinancing risk, especially if interest rates are rising globally or foreign investor sentiment sours.
Fourth, the costs of conditionality imposed by IMF programs are high and politically costly. The latest Extended Fund Facility (EFF), approved in September 2024, and the recent USD 1.2 billion staff-level agreement in October 2025 (including USD 1 billion under EFF and USD 200 million under the Resilience & Sustainability Facility, RSF) have required Pakistan to enact reforms: cutting subsidies, raising taxes, and rationalising energy tariffs. These measures, while perhaps necessary for macro-stability, tend to hit low-income households hardest and stoke public discontent. Removing subsidies, raising the price of utilities, or increasing the cost of fuel are more visible than macroeconomic metrics of GDP growth or debt reduction. Thus, governments reluctantly comply but often delay or partially implement measures, weakening the effectiveness of reform commitments.
Fifth, structural inefficiencies persist. The energy sector’s circular debt has ballooned past Rs 2.7 trillion, draining public resources. Power distribution suffers from transmission losses, theft, capacity shortfalls, and delayed bill collection. Public sector enterprises continue to run at substantial losses. Exports remain heavily concentrated in textiles and low-value-added goods, with limited diversification. Trade performance for 2025 expects exports of about USD 31 billion, while imports exceed USD 53 billion, resulting in a trade deficit of roughly USD 22 billion. Even remittances, a traditional buffer, are “flatlined” around USD 28 billion, just enough to cover a fraction of external debt service.
Sixth, external shocks amplify Pakistan’s vulnerability. Global interest rates, commodity prices, currency fluctuations, and climate events combine to weaken fiscal stability. The rupee’s trajectory is sensitive; even modest depreciation inflates foreign-denominated debt costs. Oil price spikes quickly translate into inflation and drag on the trade balance. Natural disasters and geopolitical risks reduce investor confidence, increase insurance and borrowing costs, and further tax public resources.
Seventh, policymaking remains reactive rather than strategic. Despite repeated IMF mandates and donor conditions, there is limited political consensus for reforms. Each government enters office carrying the legacies of its predecessors: high debt commitments, inflexible public sector wages, subsidy promises, and defence expenditures that are difficult to reduce in the short term. The legislative and administrative structures for long-term reforms-tax modernisation, judicial reform, energy restructuring, and export diversification-lag. Without credible institution-building, reforms are piecemeal and vulnerable to reversal.
Finally, the global environment has changed unfavourably. Many of Pakistan’s major creditors also face their own fiscal pressures. Multilateral lenders often impose stricter conditions or demand faster repayments. Bilateral lenders are less eager to provide new loans in favourable terms when global interest rates are high. Private credit markets are less forgiving for governments seen as high-risk. In short, Pakistan’s options narrow as its obligations widen.
These factors together explain why Pakistan can’t break loose from the IMF chain. Stabilising inflows, staff-level agreements, debt rescheduling, and ad-hoc repayments help delay crises. But they do not address debt’s core drivers: weak revenue, inflation, exchange rate risk, structural inefficiency, and political resistance to unpopular-yet necessary-reform.
Unless Pakistan enacts bold, systemic change-broad tax reform, structural reform of state enterprises, energy sector overhaul, export diversification, and political consensus-its economic future will continue to depend on external rescue packages. The cost of delay is a cycle of rising debt, limited growth, and policy constraints.
In short, breaking the IMF chain is not a technical adjustment-it is a strategic shift. Until Pakistan moves from borrowing to producing, from debt servicing to investing, the country will remain tethered to external finance. For now, that chain is both burden and ballast-and only by choosing reform over rhetoric can Pakistan make it a bridge, not a fetter.
The writer has been teaching at various universities for the past 12 years. He is also the Head of Research and Investigation at 365 News, works as Web Editor at Daily Times, and can be reached at Dr.Muhammad [email protected].