Dr. Ikramul Haq & Abdul Rauf Shakoori
Pakistan’s relationship with the International Monetary Fund (IMF) has been a long-standing one, characterized by both cooperation and tension. IMF’s involvement in Pakistan’s economy has often been critical, particularly when it comes to structural reforms and economic programmes.
IMF provides not only financial assistance to Pakistan but also suggest policy prescriptions aimed at addressing economic challenges such as fiscal deficits, inflation, and growth stagnation. Pakistan remains engaged in a significant economic programme under IMF’s US$7 billion 37-month Extended Fund Facility (EFF), which was approved on September 27, 2024 to help the country address its fiscal issues and pave the way for sustainable growth.
IMF’s most recent mission to Pakistan, led by Nathan Porter, between February 24 to March 14, 2025 focused on reviewing Pakistan’s progress under EFF. discussing potential new arrangements under Resilience and Sustainability Facility (RSF).
In an official statement, issued on March 14, 2025, IMF has acknowledged Pakistan’s substantial progress under economic reform agenda. IMF’s team has emphasized the importance of continuing fiscal consolidation to reduce public debt, maintaining a tight monetary policy to control inflation and accelerating reforms aimed at reducing energy costs and improving structural growth. IMF has also stressed on Pakistani authorities to show continued commitment towards strengthening social protection, health, and education while also focusing on environmental reforms to reduce natural disaster-related risks.
For achieving substantial consolidation, IMF has consistently been emphasizing upon reductions in public spending, particularly in areas that are less productive while taking measures to increase tax revenues. Pakistan’s tax-to-GDP ratio remains low and efforts to broaden tax base till today are largely unsuccessful because of which the cycle of borrowing and debt accumulation continues. Monetary policy is another area of concern. On IMF’s insistence, the State Bank of Pakistan (SBP) has tried maintaining a tight monetary policy but this comes at the cost of higher borrowing costs, which could stifle private-sector investment and economic growth.
One of the critical areas identified by IMF for reform is Pakistan’s energy sector that has long been plagued by inefficiencies, including high transmission losses, growing circular debt, and reliance on expensive energy imports. These have resulted in high cost of electricity, becoming a major burden on households and businesses alike. Proposed reforms include reducing energy subsidies, increasing tariffs, and improving management of energy sector state-owned enterprises. Despite these measures being unpopular, they are considered essential for creating a more sustainable energy sector that can support Pakistan’s growth ambitions.
Beyond fiscal and monetary policies, structural reforms meant to improve business environment, enhancing competitiveness and diversifying economy are central to IMF’s economic programme for Pakistan. Since the industrial base remains narrow and cost of doing business high, the country has struggled to attract significant foreign direct investment (FDI), which is crucial for technological advancement and job creation.
IMF has urged Pakistan to implement a range of structural reforms, including improving governance, tackling corruption, and enhancing state-owned enterprises’ efficiency. Additionally, IMF has stressed the need for social protection reforms, with a particular focus on rebuilding health and education spending to protect vulnerable populations from economic shocks. Pakistan’s efforts in implementing these reforms will determine the country’s overall progress.
Besides traditional economic concerns, IMF has also raised the importance of addressing climate change. Pakistan is among the nations, most vulnerable to the impact of climate change disasters, including floods and droughts posing threats to the populace and to its economy, as agriculture and infrastructure are particularly affected. IMF’s mission included discussions on the country’s climate reform agenda. By integrating climate considerations into the economic programme, IMF seeks to ensure that Pakistan’s growth trajectory is not undermined by climate-related risks.
Pakistan’s relationship with IMF continues to evolve as both parties work together to address the country’s pressing economic challenges but the road ahead remains full of challenges, particularly in terms of implementing reforms and maintaining social stability in the face of economic hardships.
IMF has set clear expectations for Pakistan, including a commitment to fiscal discipline, inflation control, energy sector reform, and climate adaptation. These goals are achievable, but they require unwavering political will, robust institutional frameworks, and the active participation of all stakeholders, including the private sector and civil society.
To ensure the successful completion of the IMF programme and achieve long-term economic stability, Pakistan must focus on several key actions inter alia the following:
- Continue its efforts to reduce fiscal deficits by increasing tax revenues and reducing inefficient and unproductive spending. Structural reforms in the tax system are crucial for improving the country’s revenue collection capacity.
- State Bank of Pakistan must maintain a tight monetary policy to control inflation while also balancing the need for growth. Interest rates should remain elevated until inflation is brought under control.
- Continue to address inefficiencies in the energy sector by reducing subsidies, improving tariff structures, and enhancing management of state-owned enterprises.
- Protect vulnerable populations by prioritizing social spending, particularly in health and education, to mitigate the impact of economic reforms.
- Invest in climate resilience by improving infrastructure, disaster management systems, and agricultural sustainability.
By taking these steps, Pakistan can navigate the challenges of IMF’s programme laying the foundation for a more stable and prosperous economy. However, the success of programme depends on continued commitment of Pakistani authorities to implement these reforms working in partnership with IMF to achieve their shared goals.
IMF’s ongoing engagement with Pakistan provides an important opportunity for the country to address its economic challenges and achieve sustainable growth. Though the path forward may be difficult, IMF’s support and suggested reforms in the mission statement offer a clear roadmap for Pakistan’s economic recovery and future stability. Successful implementation of IMF’s programme will require both commitment and cooperation from all sectors of economy and segments of society, and with the right policies and human resource in place, Pakistan can come out of perpetual economic uncertainty.
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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.