New Delhi, March 24 – The decision to enter another IMF funding arrangement has been a subject of ongoing debate in Pakistan, as the country has already turned to the multilateral lending institution as many as 24 times for bailout packages to address its macroeconomic vulnerabilities.
Pakistan's economy has been growing in a "stop-and-start" pattern, with short-term stabilization brought about by these IMF programs, but then worsening again due to the lack of sustainable growth, according to an article in the Karachi-based Business Recorder.
Despite IMF funding, Pakistan's gross financing needs remain exceptionally high, with high interest payments – which constitute a major portion of the total federal budget – severely limiting fiscal space, reducing social and development spending, and increasing vulnerability to macroeconomic shocks. The article pointed out that headline indicators improve during stabilization, but resilience does not.
Many vulnerabilities in Pakistan's economy remain elevated. Gains in key sectors, particularly agriculture, have been reversed by floods. The IMF forecast that due to the negative effects of the floods, the current account is expected to have a small deficit. Remittances inflows remain high in the country, providing a significant external buffer, yet imports surge due to tariff rationalization, and climatic shocks pose severe risks, the article stated.
Besides economic fragility, climatic risks also remain elevated. The recent floods have caused more agricultural damage than expected, and if they spill over into the industrial and services sectors, it could push inflation higher, reduce government revenue, and add pressure to government spending. Furthermore, rising social unrest, geopolitical tensions, and global inflation may exacerbate vulnerabilities and increase the likelihood of another crisis, the article observed.
IMF stabilization programs have focused on addressing demand-side imbalances but have not adequately addressed supply-side limitations. The article highlights that stabilization efforts leave the economy vulnerable to future crises unless reforms are implemented to address the fundamental constraints.
Pakistan's export base is still small because production is not growing. Despite rupee devaluations, exports have remained at about 9 per cent to 10 per cent of GDP, which is much lower than peers like Bangladesh and Vietnam. This demonstrates that the core barriers to growth are low productivity, a lack of human capital, and structural inefficiencies. There is an urgent need for targeted policies that will boost production in export-oriented manufacturing and services, while addressing structural constraints, enhancing human capital, and expanding the export base.
Human capital deficit is also a critical issue in Pakistan despite macroeconomic stabilization. Pakistan even lags behind peer economies such as Vietnam and Bangladesh in terms of health, education outcomes, and female labour force participation. Evidence from the HIES 2024-25 and LFS 2024-25 demonstrates that households prioritize cutting back on healthcare and education during fiscal tightening, which directly undermines long-term productivity, the article lamented.