Pakistan's IMF Programme: Staying On Track, At a Cost

Pakistan’s ongoing Extended Fund Facility with the IMF has now survived longer than most of its predecessors — a fact worth acknowledging, since programme continuity has historically been the exception rather than the rule for Islamabad. The latest review, which cleared the most recent tranche disbursement, confirmed broadly satisfactory performance on the key quantitative targets: primary surplus, net international reserves, and the programme’s structural benchmarks.

This is genuinely good news. It is also, however, an incomplete picture.

What the programme has achieved

The most visible achievement is macroeconomic stabilisation. The rupee, which was in free fall through 2023, has found a broadly managed equilibrium. Inflation, which peaked above 38 percent in mid-2023, has come down sharply — the current reading is in single digits. Foreign exchange reserves, which had fallen to dangerously low levels, have recovered to a more defensible position, though they remain below the IMF’s own adequacy benchmarks.

The current account deficit, which was the proximate cause of the 2023 crisis, has narrowed substantially. Some of this reflects genuine adjustment. Some reflects import compression — a less flattering explanation, since it means Pakistani businesses and consumers have been spending less because they cannot afford to import, not because the economy has become more self-sufficient.

What the programme has not achieved

The structural reform agenda — the part that is supposed to reduce Pakistan’s dependence on periodic IMF rescues — is moving more slowly. Energy sector circular debt remains a significant contingent liability on the public balance sheet. The tax base, despite some expansion of withholding taxes, remains narrow by regional standards. State-owned enterprise reform, a perennial commitment in Pakistani IMF programmes, has produced some privatisation discussions but limited completed transactions.

These are not new observations. They appear, in varying formulations, in virtually every Article IV consultation the IMF has published on Pakistan for the last fifteen years. The persistence of the diagnosis suggests the constraint is political, not analytical — successive governments have found it easier to meet quantitative programme targets through revenue measures and expenditure cuts than to tackle the structural distortions that generate the recurring crises.

The next twelve months

The programme runs through 2027. The next twelve months will test whether the structural benchmarks that have been deferred can be advanced in a political environment that remains complicated. Energy pricing reform, in particular, will require decisions that are fiscally necessary and politically costly. The government’s room to manoeuvre depends partly on whether growth recovers sufficiently to generate the fiscal space that makes hard choices less brutal.

The base case remains programme completion. The risk case is familiar: a political shock, an external financing gap, or an energy price spike that overwhelms the adjustment arithmetic. Pakistan has navigated that risk before. The fact that it keeps recurring is the point worth not losing sight of.