Dr. Ikramul Haq & Abdul Rauf Shakoori
The current account recorded a surplus of US$2.1 billion in FY25 (0.5 percent of GDP), Pakistan’s first surplus in 14 years, driven by a sustained rebound in remittances, alongside stronger-than-expected net trade in services, and import demand compression amid fiscal consolidation. Gross reserves exceeded program targets, reaching US$14.5 billion at end-June 2025 (54.3 percent of the ARA metric), supported by programmed inflows and opportunistic SBP FX purchases. Sovereign spreads have declined to around 420 basis points on the back of rating upgrades from S&P and Moody’s (to B- and Caa1, respectively). The rupee has remained broadly stable against the US dollar and the premium between open market and interbank rates remains very small. Overall, the FY24 external position was broadly in line with the level implied by medium-term fundamentals and desirable policies (Annex II)—External Conditions and the FX Market – IMF Country Report No. 25/332.
The approval by Executive Board of the International Monetary Fund (IMF) of second tranche under Pakistan’s 37-month US$ 7billion Extended Fund Facility (EFF) program and the first review under 28-month US$ 1.4 billion Resilience and Sustainability Facility (RSF) shows a positive step in sustaining macroeconomic stability and allowing access to combined disbursements of about US$1.2 billion. The approval, following the completion of the second review under the EFF and first under the RSF, confirms that Pakistan broadly met quantitative performance criteria and implemented agreed prior actions.
The approval also comes alongside the imposition of eleven new structural conditions that raise the total number of program conditions to sixty four. The approval therefore reflects confidence in short term policy compliance rather than a declaration that Pakistan’s structural issues have been resolved.
The background of the IMF program lies in Pakistan’s repeated balance of payments crisis and persistent fiscal and external challenges. The approval of the EFF on September 25, 2024 followed a period of critically low reserves, high inflation, and limited market access.
The design of the program prioritizes macroeconomic stability, fiscal consolidation, and institutional reform rather than short term growth stimulus. The program also incorporates climate resilience objectives through the RSF in response to Pakistan’s exposure to climate risks.
The overall economic conditions in Pakistan show signs of stability but remain fragile. The real GDP growth reached about 3 percent in fiscal year (FY) 2025, supported by services and agriculture recovery before the floods. The inflation declined sharply to an annual average of about 4.5 percent in FY 2025 due to tight monetary policy and base effects. The unemployment and underemployment remain elevated due to weak private investment and structural rigidities.
The IMF staff report provides a balanced evaluation of progress and remaining risks. The assessment acknowledges strong implementation despite political uncertainty and severe floods. The assessment emphasizes that past program failures were driven by early easing of discipline.
The selected economic indicators point to adjustment driven stability rather than broad based expansion. The current account recorded a surplus of about US$2.1 billion or 0.5 percent of GDP in FY 2025. The improvement was driven by remittances, services exports, and import compression. The gross official reserves increased to about US$14.5 billion by end FY 2025.
The outlook remains cautiously positive but subject to significant downside risks. The growth is projected at about 3.2 percent in FY 2026 under continued implementation of reform. The risks include climate shocks, revenue shortfalls, global commodity volatility, and policy slippage.
The program performance under the EFF and RSF is assessed as broadly on track. The authorities met six out of seven quantitative performance criteria by end June 2025. The missed criterion related to social spending was minor and temporary.
The fiscal policy remains the core point of the program. The primary surplus reached about 1.3 percent of GDP in FY 2025. The official publication shows net federal revenues of PKR 9.9 trillion and expenditures of about PKR 17 trillion. The overall national fiscal deficit stood at about 5.4 percent of GDP—total revenue of PKR. 17.99 trillion against total expenditure of PKR 24.16 trillion. The poverty reduction and social protection framework is an explicit program pillar. The Benazir Income Support Program allocations were increased to protect vulnerable households. The IMF estimates that poverty rose to about 25 percent following recent shocks.
The monetary and exchange rate policies are assessed as appropriately tight. The State Bank of Pakistan maintained a restrictive policy stance to anchor inflation expectations. The exchange rate flexibility helped absorb external pressures and rebuild reserves. The financial sector policies focus on stability and risk containment. The banking system remains adequately capitalized but exposed to sovereign risk. The selected banking indicators show resilience but rising asset quality risks.
The energy sector policy remains the most difficult reform area. The timely tariff adjustments reduced circular debt flow significantly. The IMF now requires private sector participation in Hyderabad Electricity Supply company (HESCO) and Sukkur Electric Power Supply Company (SEPCO). The other structural policies focus on governance, taxation, and market competition. The publication of asset declarations of senior civil servants is required to address corruption risks.
The sugar sector liberalization policy aims to eliminate elite capture. Similarly, the impact of the 2025 monsoon floods significantly affected the macroeconomic outlook and affected about seven million people and caused damages of around PKR 800 billion. The overall impact of the devastated flood reduced the growth by about half a percentage point. The capacity to repay indicators remains weaker than GRA only borrowing countries. The IMF exposure is projected to peak in 2027 with elevated debt service ratios.
The Medium-Term Macroeconomic Framework assumes gradual recovery under sustained reforms. The public debt is projected to decline from about 73 percent of GDP to about 61 percent by FY 2030.
The balance of payments framework assumes continued official financing and modest deficits. The external gross financing requirements remain high and depend on multilateral and bilateral inflows. The Monetary Survey reflects tight liquidity and subdued private credit growth.
The report states that stability without deep reforms will not be lasting, therefore the comprehensive reform agenda must focus on tax policy and administration reform, structural restructuring of the Federal Board of Revenue, comprehensive energy sector overhaul, state owned enterprise reform, and strict adherence to good governance standards.
The reform effort must aim to broaden the tax base, reduce exemptions, strengthen compliance, and improve revenue predictability to support fiscal sustainability. The energy sector reforms must address pricing distortions, governance failures, and persistent circular debt through cost reflective tariffs and private sector participation.
The state-owned enterprise reforms must focus on financial transparency, performance based management, and reduced fiscal risks. The implementation strategy must emphasize careful sequencing, strong political will, institutional capacity building, and effective protection of underserved population to ensure durable macroeconomic stability and place Pakistan firmly on a track of sustainable growth.
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Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, environment, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing. He was 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 studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA).
He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include, Tax Reforms in Pakistan: Historic & Critical Review, Towards Broad, Flat, Low-rate, and Predictable Taxes (third edition, 2024), 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 author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, 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/article/papers for many Pakistani newspapers and international journals and has contributed over 3000 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
X (formerly Twitter): DrIkramulHaq
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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, 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 have 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 and 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 grey 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, Countering corrupt practices .
X (formerly Twitter): Abdul Rauf Shakoori
The recent publication, coauthored by these writes 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