In late September 2025, the International Monetary Fund (IMF) launched its formal review of Pakistan's $7 billion Extended Financing Facility (EFF) and $1.1 billion Resilience and Sustainability Facility (RSF), covering performance through June 2025. The findings painted a mixed picture. While Islamabad managed to meet power sector performance benchmarks, revenue collection fell short by nearly PKR 1.2 trillion, equivalent to almost 1 percent of GDP. At the same time, the IMF raised alarm over an $11 billion discrepancy in Pakistan's trade data across the past two fiscal years. Import figures reported by Pakistan Revenue Automation Limited (PRAL) were $5.1 billion lower than those from Pakistan Single Window (PSW) in FY2023-24, and the gap widened further to $5.7 billion in FY2024-25. These inconsistencies have heightened concerns about the credibility of Pakistan's external sector statistics, leading the IMF to demand corrective measures and a clear communication strategy to restore investor confidence.

The Pakistan Bureau of Statistics has hesitated to revise historical data, wary of the impact on growth and export numbers, but the IMF has insisted that transparency is essential. This dispute highlights a broader pattern: successive governments have repeatedly avoided long-term reforms, instead turning to short-term external borrowing to manage immediate pressures. As a result, Pakistan's balance of payments crisis has become chronic, and IMF bailouts have evolved into routine lifelines rather than extraordinary interventions.

Since joining the IMF in 1950, Pakistan has sought assistance 24 times, including four major programmes in the past decade alone that together exceeded $9 billion. Yet the same underlying weaknesses persist. Current IMF-related obligations are already above $7 billion, while officially reported external debt equals 35.1 percent of GDP. Independent assessments suggest the true burden is far greater. When factoring in contingent liabilities and off-balance-sheet commitments, Pakistan's external obligations could reach $219 billion, or nearly 73 percent of GDP. These liabilities include $8.7 billion in circular debt within the energy sector expanding at more than 200 percent annually, $15 billion in contractual“take-or-pay” guarantees for Chinese power plants, $16.28 billion in debt held by state-owned enterprises, and up to $45 billion in undisclosed government guarantees.

The accumulation of these debts poses severe risks to fiscal consolidation. Pakistan's debt-servicing ratio already stands at nearly 30 percent of export earnings, the same threshold that pushed the country into default in 1999. With exports stagnant at just 8 percent of GDP and imports exceeding 22 percent, the country faces a structural foreign exchange deficit that cannot be bridged without further borrowing, locking it into a cycle of dependency.

The IMF continues to prescribe fiscal consolidation, exchange rate liberalisation, subsidy reduction, and privatisation of loss-making state enterprises. These are sound economic measures in theory but politically difficult to enforce in Pakistan's current environment. Citizens view the ruling elite as unaccountable, and efforts to expand the tax base or reduce subsidies are met with strong resistance. Pakistan's tax-to-GDP ratio remains among the lowest in South Asia, largely because of inefficiencies in collection and the large size of the informal economy. At the same time, government expenditures on energy and food subsidies frequently outweigh revenues, ensuring recurring deficits.

The energy sector exemplifies these challenges. Transmission losses and circular debt undermine financial stability, while heavy reliance on oil and imported liquefied natural gas creates massive foreign exchange outflows. Annual oil imports stand at $17 billion, and projected LNG demand could rise to $32 billion by 2030. The banking sector faces its own vulnerabilities, with 57 percent of commercial bank assets tied up in government securities, almost three times the emerging market average. This interdependence creates a dangerous feedback loop between public finances and financial stability.

Governance reforms have also shown limited success. The IMF has expressed concern that the State Bank of Pakistan previously pressured banks to keep the exchange rate artificially low, encouraging imports, discouraging exports, and accelerating reserve depletion. Revenue targets continue to be missed despite repeated IMF programmes, and implementation of structural reforms remains inconsistent. The World Bank's $20 billion ten-year programme announced in January 2025 aims to support energy, education, and infrastructure, but its scale is still insufficient compared to Pakistan's annual $30 billion debt-servicing requirements.

The surge in the Pakistan Stock Exchange earlier this year, with an 87 percent rise in the first quarter of 2025, offered a temporary sense of optimism. Yet analysts warn this was driven largely by speculative foreign inflows concentrated in a few business conglomerates rather than by a broad-based recovery. Meanwhile, Foreign Direct Investment remains low, constrained by political instability, security concerns, and unpredictable regulations. Inflation has eased from its peaks, but the combined effects of currency depreciation, rising living costs, and high interest rates have eroded purchasing power and constrained investment.

Pakistan's reliance on IMF support underscores both the scale of its vulnerabilities and the lack of sustained reform. The Fund's programmes may provide temporary relief, but without a comprehensive strategy to improve governance, broaden the tax base, and restructure inefficient sectors, future bailouts will remain inevitable. IMF support has too often been associated with austerity measures that increase hardship for ordinary citizens while sparing entrenched elites. This disconnect between economic prescriptions and political realities explains why reforms repeatedly stall.

If Pakistan is to break free from the cycle of crisis and bailout, the bargain between the IMF and Islamabad must be recalibrated. Financial support cannot be limited to balance-sheet adjustments; it must be tied to credible governance reforms that change incentives, address corruption, and protect the vulnerable during transition. Without such measures, IMF loans will continue to finance short-term survival rather than long-term recovery, leaving Pakistan trapped in a cycle of financing without fixing.

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