Pakistan has for many years been in negotiations with the International Monetary Fund (IMF), seeking financial support to stabilize its economy. These agreements require reforms that are often difficult, but necessary. For Pakistan to grow sustainably, the challenge is to implement these reforms without causing undue hardship to its people. Pakistan is navigating that balance through key reforms, while still facing significant risks.
Economic Context and Key Reforms
In September 2024, the IMF approved a 37-month Extended Fund Facility (EFF) for Pakistan worth approximately US$7 billion. The arrangement is intended to help the country restore macroeconomic stability, address structural economic weaknesses, and support more inclusive growth.
Since the program began, Pakistan has taken several steps:
- Inflation control. Inflation, which was over 20 percent, has begun to recede. In FY 2024, consumer inflation averaged about 23.4 percent, but it is projected to drop to about 9.2-10.6 percent in FY 2025.
- Growth forecasts. The IMF expects real GDP growth to rise from about 2.4 percent in FY 2024 to roughly 3.2 percent in FY 2025.
- Fiscal discipline. To meet reform requirements, the government is tightening spending, eliminating or reducing subsidies, and raising revenue through better tax collection. There is also a strong emphasis on energy sector reform, reducing the burden of circular debt.
The Social Costs and Government Measures
Economic reforms carry social costs. Price hikes (especially for fuel, electricity, and energy), higher taxes, and reduced subsidies tend to hit low-income and vulnerable populations hardest. If not managed carefully, such reforms can cause unrest, deepen poverty, and increase inequality.
To avoid those negative outcomes, the government has taken some mitigating steps:
- Maintaining or bolstering social safety nets (for example, through programs like the Benazir Income Support Programme) to protect the poorest.
- Phasing reforms rather than applying them all at once, so that people and businesses have time to adjust.
- Adjusting monetary policy in coordination with fiscal policies, so inflation does not spiral out of control. The State Bank of Pakistan has adopted relatively tight monetary policy to support the fall in inflation.
Risks and Challenges
Even with reforms, several risks could undermine efforts to maintain social stability:
- Inflation volatility. Though projections are positive, inflation remains sensitive to external shocks (rising commodity prices, supply chain disruptions, climate‐related disasters such as floods) that can reverse gains quickly. For example, recent floods in Punjab and Sindh have had serious economic consequences, including disruptions in agriculture and rising food inflation.
- Public discontent. Measures like subsidy removal or tax increases are often unpopular. If the pace of reforms is perceived as unfair or too harsh, this could lead to social unrest or political risk.
- Structural weaknesses. Long-standing issues such as a narrow tax base, weak governance in certain institutions, inefficiencies in state-owned enterprises, and energy sector losses continue to be impediments. These make it harder to generate revenue or sustain reforms without external support.
- External risks. Global financial conditions, foreign investment flows, and exchange rates affect Pakistan materially. If global interest rates rise or external trade is disrupted, Pakistan’s economy can face severe headwinds.
Striking the Right Balance
For Pakistan, successful reform means not just meeting IMF benchmarks but doing so in a way that maintains social stability and public trust. Some strategies that seem especially important:
- Transparent communication. Clearly explaining why reforms are required, what the tradeoffs are, and how ordinary citizens will be protected.
- Targeted support. Focusing relief where it is most needed (lowest income groups, rural households, etc.).
- Gradual implementation. Phasing in changes to allow time for adaptation.
- Monitoring and flexibility. Using data to track the effects of reform measures and adjusting policies if negative social impacts become too severe.
Conclusion
Pakistan’s agreement with the IMF represents both a critical opportunity and a serious responsibility. Economic reform is essential to restore stability, attract investment, and build resilience. But reforms cannot succeed in the long term if they ignore social realities. Balancing economic discipline with compassion for vulnerable populations is not only right morally it is smart policy. If well managed, Pakistan can use the IMF program to lay the foundation for stronger growth, social inclusion, and government credibility.
