Dr. Ikramul Haq & Abdul Rauf Shakoori
The near end of 2025 has brought a rare turning point in Pakistan’s political economy, as a long deferred reform finally materialized through the successful privatization of Pakistan International Airlines (PIA). The prudent and crucial decision to finally divest 75% stake in the national carrier symbolizes more than a transaction. It reflects a broader shift in policy thinking toward fiscal pragmatism, asset monetization, and reduction of recurrent losses that have been heavily weighing on public finances for decades.
The successful bid (US$482 million) on December 23, 2025, signaled renewed investor confidence in Pakistan’s reform direction and allowed the government to reduce its direct exposure to PIA, a chronically loss making enterprise, easing pressure on budgetary transfers and contingent liabilities. According to a source, “7.5% of the proceeds from the sale of PIA will go into the national exchequer. The rest will be reinvested in the airline to improve its infrastructure”.
The privatization of PIA means an immediate and measurable fiscal impact. The reduction in annual subsidies, guarantees, and bailout requirements will improve the government’s cash flow and strengthen credibility with international lenders. The transaction highlighted the government stated intent to rationalize its commercial footprint and redirect scarce public resources toward priority areas such as social protection, infrastructure, and debt servicing. The political economy significance of this move lay in its timing, as it coincided with a period when Pakistan was attempting to rebuild macroeconomic credibility after years of stress.
Apart from the privatization of PIA, the outgoing 2025 can also be termed as a year of stability, reform, and cautious optimism where the economy of Pakistan has exhibited some visible signs of improvement and certain key indicators have posted positive results. The economy entered 2025 after several years of macroeconomic instability categorized by high inflation, balance of payments pressures, and weak investor sentiment. The shift toward relative stability was underpinned by fiscal discipline, improved coordination with provinces, and sustained engagement with international financial institutions, particularly the International Monetary Fund (IMF).
The fiscal performance during 2025 showed significant improvement on revenue front. The Federal Board of Revenue (FBR) collected Rs. 11.744 billion during fiscal year (FY) 2024–25, compared to Rs. 9.299 billion in FY 2023–24, reflecting an annual increase of approximately Rs. 2.4 trillion or 26.3%.
The achievement of a double digit tax to GDP ratio of 10.3 percent termed a significant departure from the decade long average of 8.7 percent and highlighted progress in revenue mobilization. The slower growth of 10.2 percent in FBR collections during the first five months of current fiscal years highlights the challenges ahead and the need for accelerated efforts to meet annual targets, even as lower than budgeted interest payments provided some fiscal space to contain the deficit.
The growth performance of the economy also showed resilience. The Pakistan Bureau of Statistics revised the GDP growth rate for FY 2025 upward to 3.04 percent from an earlier estimate of 2.68 percent. The revision reflected improved performance across agriculture, services, and selective industrial segments, despite a challenging global environment. The improvement was acknowledged by international rating agencies, which revised Pakistan’s credit outlook, similarly, sovereign default risk that once dominated market discourse receded considerably, with the pace of recovery ranked among the fastest globally.
The monetary and debt dynamics of 2025 further supported stability. The elevated interest rate environment of previous years had forced private sector activity and pushed the government deeper into a high cost debt cycle. The easing of inflation allowed the State Bank of Pakistan to adopt a more accommodative stance. In December 2025, the Monetary Policy Committee reduced the policy rate by 50 basis points to 10.5 percent, bringing cumulative cuts to 11.5 percent over two years. The lower rate environment enabled the government to reprofile its debt, retire expensive liabilities, and refinance at more sustainable costs.
The external sector’s performance provided one of the strongest signals for macroeconomic improvement. The posting of a current account surplus of US$ 2.1 billion in FY 2025 showed the first surplus in fourteen years and was driven largely by strong workers’ remittances and improved import management. The subsequent reemergence of a current account deficit of US$ 812 million during the first five months of FY 2026 underscored ongoing vulnerabilities, but the broader trend reflected greater discipline in managing external accounts compared to previous cycles.
The domestic fiscal stance was reinforced by a record primary surplus of Rs. 2.7 trillion, equivalent to 2.4 percent of GDP. The achievement reflected coordinated efforts by federal and provincial governments to contain non-development expenditure and improve revenue performance. The primary surplus strengthened Pakistan’s negotiating position with creditors and highlighted the seriousness of its fiscal adjustment under the IMF programme.
The improvement in macroeconomic conditions was mirrored in financial markets. The Pakistan Stock Exchange delivered record breaking performance during the year, crossing successive milestones of 150,000 and later 170,000 points. The equity market performance became a visible indicator of restored market sentiment.
The engagement with the IMF remained predominant to Pakistan’s political economy in 2025. The continuation of the 37-month US$7 billion Extended Fund Facility (EFF) anchored fiscal discipline, energy sector reforms, and governance measures. The IMF’s assessments highlighted both progress and persistent structural weaknesses, including narrow tax bases, state owned enterprise inefficiencies, and governance gaps. The political economy challenge remained balancing reform conditionality with domestic social and political pressures.
The year 2025 also witnessed significant debate around digital finance and crypto regulation. The state moved cautiously toward a regulated framework for virtual assets, signaling intent to shift from prohibition toward oversight and compliance. The discussions reflected broader global trends and Pakistan’s need to address informal capital flows, financial inclusion, and technology driven innovation by remaining aligned with IMF conditions and financial stability concerns.
The security and geopolitical environment continued to shape economic outcomes. The persistent security challenges in border regions and episodic regional tensions imposed costs on investor confidence and public spending priorities. At the same time, Pakistan pursued economic diplomacy aimed at improving its global image, attracting foreign investment, and positioning itself as a reforming economy rather than a crisis prone one.
The political economy of 2025 ultimately reflected a year of transition rather than transformation. The combination of PIA privatization, fiscal consolidation, reduction in policy rate, and external sector adjustment did not eliminate structural challenges, but it did restore a measure of credibility and predictability.
The year 2025 in economic terms would be remembered positively as Pakistan managed occupying a more resilient position than it had at beginning, showing that measured macroeconomic consolidation, though inherently delicate, is attainable through disciplined policy execution and sustained institutional reform.
______________________________________________________________________
Dr. Ikramul Haq, an advocate of the Supreme Court and writer is an adjunct faculty at Lahore University of Management Sciences (LUMS). Abdul Rauf Shakoori is a corporate lawyer based in the USA.