Dr. Ikramul Haq & Abdul Rauf Shakoori
The nation celebrated yet another Pakistan Day yesterday, a historic occasion commemorating the Lahore Resolution of 1940, which laid the foundation for an independent Muslim state in the subcontinent. This day serves as a reminder of the resilience, sacrifices, and vision that shaped Pakistan’s journey toward sovereignty and independence. Over the decades, Pakistan has faced numerous challenges, from security concerns to economic turmoil, yet the spirit of Pakistan Day instills a sense of national pride and unity. However, while the nation marks its historical achievements, it continues to grapple with significant economic challenges, especially an unsustainable, burgeoning debt burden, threatening financial stability and future growth prospects.
The Prime Minister, Shehbaz Sharif, completed an important four-day visit to Saudi Arabia, returning to Islamabad on March 22, 2025 with renewed hopes of strengthening economic ties between the two countries. The visit focused on enhancing trade partnerships, attracting Saudi investments, and fostering economic cooperation in key sectors.
During high-level meetings with Saudi Crown Prince Mohammed Bin Salman, as well as Saudi Investment Minister Khalid Al-Falih, the Pakistani delegation discussed strategies to boost economic collaboration and investment flows. The Prime Minister also visited Medina and performed Umrah in Mecca, signifying the deep-rooted ties between Pakistan and Saudi Arabia. The diplomatic and economic engagements with Gulf nations are critical for Pakistan’s financial well-being, however, they cannot serve as a long-term solution to Pakistan’s persistent debt vulnerabilities and economic challenges.
The textile and apparel industry, a major pillar of Pakistan’s export economy, has shown signs of recovery, achieving a record $6.2 billion in exports during the first eight months of the 2024-25 financial year, reflecting 19% year-on-year growth. The industry has witnessed a 9.3% growth rate, regaining lost momentum despite global economic challenges. However, concerns persist regarding Pakistan’s declining cotton production, as the country has dropped from the third largest to the sixth-largest global cotton producer. While Comparing with Brazil’s superior agricultural practices highlight deficiencies in Pakistan’s seed technology, irrigation systems, and mechanized farming methods. The industry experts emphasize the need for climate-resilient seed varieties, better regulations for seed certification, and improved agricultural policies to sustain Pakistan’s textile competitiveness.
Despite the modest gains in exports, Pakistan’s economic crisis remains far from resolved, as highlighted by the IMF mission’s recent report on the country’s debt vulnerabilities. An IMF team, led by Nathan Porter, conducted the first review under the US$7 billion 37-month Extended Fund Facility (EFF) and discussed the possibility of a Resilience and Sustainability Facility (RSF). The mission commended Pakistan’s fiscal consolidation efforts, tight monetary policies to curb inflation, and structural reforms aimed at reducing public debt and improving energy sector viability. However, the underlying reality remains bleak, as Pakistan continues to struggle with high external debt obligations, low revenue generation, and growing financing needs.
The IMF’s policy paper on debt vulnerabilities and financing challenges highlights key risks for emerging markets and developing economies (EMDEs), with Pakistan being a prime example of a nation facing severe debt distress. Public debt levels have remained alarmingly high, exacerbated by the COVID-19 pandemic, rising global interest rates, and structural shortcomings. Although some emerging economies have stabilized their debt-to-GDP ratios, Pakistan’s debt trajectory remains concerning, given the high cost of financing and persistent balance of payment crises.
The composition of Pakistan’s external public debt has undergone a significant shift in the past two decades, with a greater reliance on private and non-Paris Club creditors. The IMF report highlights how low-income countries (LICs) and emerging markets (EMs) have increasingly turned to commercial creditors, sovereign bonds, and bilateral loans to meet financing needs. This shift has led to higher debt servicing costs, as private lending tends to come with steeper interest rates and shorter maturities.
Unlike previous decades, where multilateral institutions like the IMF and World Bank played a dominant role in Pakistan’s external debt. Today, a large portion of liabilities are owed to private creditors and non-traditional lenders such as China and Middle Eastern financial institutions.
The external debt service burden has increased dramatically, with Pakistan’s external principal payments exceeding US$20 billion in 2023, a figure continued to rise in the coming years. The country has increasingly relied on short-term borrowing, rolling over existing debt rather than reducing liabilities. External financing needs exceed US$30 billion per year, creating severe repayment pressures. Unlike some developing economies that have successfully diversified funding sources, Pakistan’s financing strategy remains largely reactive, dependent on last-minute bailouts from allies or emergency IMF support programmes.
A fundamental weakness in Pakistan’s debt sustainability framework is the lack of robust revenue generation mechanisms. The IMF report categorically states that how many EMDEs struggle with low tax-to-GDP ratios, and Pakistan is no exception. The country falls significantly short of the global benchmark for sustainable fiscal management due to a tax-to-GDP ratio below 10%. While successive governments have promised tax reforms, broadening of the tax base, and digitization of tax collection, actual progress remains limited due to political resistance, weak enforcement, and corruption. Without serious tax system reforms and drastic cut of wasteful expenses, Pakistan will continue accumulating debt without improving repayment capacity.
The rising cost of domestic and external borrowing has further aggravated debt vulnerabilities. Interest payments on total public debt have surged, consuming a growing share of fiscal revenues. The IMF analysis shows that Pakistan’s debt servicing obligations exceed 50% of revenue, leaving little room for development spending, infrastructure investment, or social protection programmes. This fiscal squeeze has led to cuts in health and education budgets, undermining long-term economic stability. Unlike countries that invest in human capital to drive productivity and innovation, Pakistan remains trapped in a cycle of debt-driven expenditures with minimal economic returns.
Another pressing concern is Pakistan’s energy sector shortcomings, which continue to weigh heavily on public finances. The IMF report highlights how energy subsidies, circular debt accumulation, and inefficient tariff structures contribute to economic challenges. The government has implemented cost-reducing measures, the structural flaws of the power sector, reliance on imported fuels, and weak regulatory enforcement keep energy costs high. Pakistan’s fiscal vulnerabilities will continue to persist without fundamental reforms in energy pricing and governance.
The IMF mission report also stresses the importance of climate resilience in managing long-term economic risks. Pakistan remains highly vulnerable to climate related challenges, as seen in the devastating floods of 2022, which caused economic losses exceeding US$30 billion. The Resilience and Sustainability Facility (RSF) could provide additional financial support for climate adaptation, effective policy implementation, disaster preparedness, and environmental governance remain critical for long-term economic resilience.
The government’s approach to debt management has been largely short-sighted, relying on external bailouts, currency devaluations, and ad-hoc austerity measures rather than long-term structural reforms. The IMF report calls for fiscal discipline, transparent governance, and targeted reforms to break the cycle of debt dependency. However, political instability and fiscal mismanagement continue to hinder progress. Pakistan’s leadership often prioritizes short-term political gains over long-term economic planning, unlike countries that have successfully restructured debt and pursued industrialization strategies.
The urgency of Pakistan’s debt crisis requires immediate and decisive policy interventions. The country must prioritize export diversification, reduce reliance on external borrowing, and implement serious tax reforms to improve fiscal sustainability. The improvement in public financial management, enhancing transparency in government expenditures, and attracting sustainable foreign direct investment (FDI) are key steps toward long-term economic stability. Pakistan will remain vulnerable to external shocks and financial crises, without fundamental changes in fiscal policy, debt management, and economic governance.
The way forward demands bold leadership, economic vision, and institutional accountability. Pakistan’s policymakers must move beyond temporary fixes and short-term relief packages, instead focusing on building a resilient economy capable of withstanding global financial pressures. The lesson from the IMF report is clear: Pakistan’s financial future will remain uncertain, without sustainable debt management, economic reforms, and revenue growth, The country’s economic survival depends on decisive action, strategic policymaking, and a commitment to long-term stability rather than continued reliance on external support.
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Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media, and cyber laws, ML/CFT, IT, intellectual property, arbitration, and international taxation. He studied journalism, English literature, and law. He holds an LLD in tax law with a specialization in transfer pricing. He was a full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner.
He is the Chief Editor of Taxation. He is the country editor and correspondent of the International Bureau of Fiscal Documentation (IBFD) and a member of the International Fiscal Association (IFA). He is a Visiting Faculty at the Lahore University of Management Sciences (LUMS) and member Advisory Board and a Visiting Senior Fellow of the Pakistan Institute of Development Economics (PIDE).
He has co-authored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (Revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law, Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is the author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, and its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal). He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines, and newspapers at home and abroad.
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime, and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies, and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, and cross-border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career, he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and has also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study-driven scenarios and exams to ensure knowledge transfer.
His notable publications are Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan Rauf’s Research on Labour Laws and Income Tax, and others.
His articles include Revenue Collection: Contemporary Targets vs. Orthodox Approach, It is Time to say goodbye to Our Past, US Double Standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly listed Pakistan, Corruption is No Excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF Secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge.
The recent publication, coauthored with Huzaima Bukhari, is
Pakistan Tackling FATF: Challenges & Solutions
available at:
https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35
https://www.amazon.com/dp/B08RXH8W46