Pakistan’s economic outlook has improved slightly, with the KSE-100 index surging by 1,400 points and the government exuding confidence in its fiscal strategies. Prime Minister Shehbaz Sharif’s expansion of the federal cabinet and markets anticipating a drastic monetary easing have added to the optimism. However, as Pakistan approaches its next review under the International Monetary Fund (IMF) program, the key question remains: should the IMF give Pakistan a clean bill of health?
It is important to note that this discussion is not about whether Pakistan has met the IMF’s program benchmarks, nor is it a critique of the country’s inflation rate, the sustainability of its current account surplus, or the credibility of tax collection efforts. Instead, it is a broader assessment of the IMF’s role and the trajectory of its program from the Fund’s perspective.
The IMF’s primary mandate as a lender of last resort is to prevent balance of payments crises. If a country of 240 million people, like Pakistan, requires stringent quantitative targets to avoid default, the IMF will enforce those terms. However, the IMF’s task does not end with financial stabilization—it is also about ensuring the implementation of deep structural reforms that lead to sustainable change. Unfortunately, the political will needed for such reforms is often lacking.
Pakistan’s leadership has a long history of underperforming when it comes to implementing lasting economic reforms. Despite repeated IMF programs, many fail to bring about the structural changes necessary to address the root causes of the country’s economic dysfunction. One year into its tenure, the current government has focused on extracting more from the formal sectors—corporates and salaried employees—while avoiding necessary public sector reforms.
Pakistan’s ruling elite appears increasingly convinced that they have weathered the worst economic storms, leading to declarations of “successful stabilization” and reduced fiscal discipline. Yet, as history has shown, stabilization is temporary, and the deeper issues that persist in the country’s economy—such as an overburdened tax system and inefficient public sector—remain unaddressed. The concern now is that the government may fall into the same cyclical pattern of failing to implement necessary reforms, only to find itself in another crisis in the future.
In light of this, the IMF faces a difficult question: should it continue to simply rubber-stamp progress in Pakistan or take a more proactive approach? The Fund’s negotiators have observed Pakistan’s cyclical failure to enact meaningful reforms over many years. With each incomplete program, the IMF’s credibility is further questioned, and its failure to extract significant reforms from Pakistan becomes a stain on its record.
While the Fund may hope that the current political climate is different, history shows that when faced with political pressure or the risk of electoral defeat, Pakistani politicians have consistently prioritized short-term political survival over long-term economic reforms. The looming threat of elections only amplifies this danger. The temptation to relax fiscal discipline to gain voter favor is likely to become irresistible as the election season draws nearer.
The IMF must act decisively in this upcoming review. If the government continues to focus on narrow fiscal policies without tackling the larger issues—such as broadening the tax base, restructuring the public sector, and curbing inefficiencies—then Pakistan will inevitably find itself stuck in a vicious cycle of economic instability.
Allowing this program to unravel under political pressure, as previous programs have, would be predictable and disastrous. The IMF has a responsibility to demand comprehensive structural reforms as part of the next phase of Pakistan’s recovery. Meeting basic fiscal targets is no longer enough. True change requires a reduction in the size of the government, an overhaul of public expenditures, and a broader tax base to support sustainable growth.
The window for incremental changes in Pakistan’s governance is closing fast. For the IMF, the time has come to stop deferring the inevitable and to apply greater pressure on the government to enact reforms. The citizens of Pakistan have already endured tremendous economic hardship, with real wages set back by years. To allow this pain to go unaddressed would be indefensible.
In conclusion, the IMF should not view its upcoming review of Pakistan as just another procedural step. Policymakers must be held accountable to deliver meaningful reforms. If Pakistan’s leadership refuses to act, the IMF must make it clear that they will have no alternative but to restructure their governance for the nation’s economic survival. Without real change, Pakistan risks enduring the same economic cycles, but with no bailout to save them next time.