Pakistan’s relationship with the International Monetary Fund (IMF) is often painted as a toxic liaison – a recurring bailout cycle that many see as neocolonial or degrading. The real problem lies within Pakistan’s own economic system: weak institutions, chronic mismanagement and structural imbalances that keep the country perpetually indebted. The IMF may be the lifeline, but our system is the tether.
It is important to recognize what the IMF provides: temporary cash flow relief, not a magic cure. In September 2024, the IMF approved a 37-month Extended Fund Facility (EFF) of about US $7 billion for Pakistan. According to the IMF, this deal was conditional on “sound policies and reforms to address deep structural challenges.”
One of the biggest structural issues is Pakistan’s narrow tax base and weak fiscal framework. As noted in an IMF ‘selected issues” report, protectionist economic interventions, a sluggish regulatory environment and underinvestment in Human capital have crippled long-term growth. Pakistan relies heavily on debt, yet it fails to generate adequate domestic revenue. The country’s tax-to-GDP ratio remains abysmally low, which forces the government to borrow just to pay interest.
Critics often argue that IMF requirements are harsh – and they are not wrong. But austerity alone does not explain our repeated crises. Loans primarily “ease Pakistan’s debt repayment,” but the real challenge is that the economic and financial reforms demanded by the IMF. Such as tax reforms, subsidy cuts, and a market-based currency – require deep political consensus. Without sustained commitment, these reforms stay superficial, and the country ends up dependent on the IMF again.
IMF programs are often the only lifeline for countries in acute distress. The problem is not that Pakistan turns to the IMF – it is that every time we do, out internal architecture fails to deliver real reform. Debt gets rolled over, interests payments mount, and developments projects remain underfunded. This cycle reflects poorly on us, not the IMF.
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These systemic issues are not just economic; they are deeply political. Governance in Pakistan remains weak, with divided institutions, weak regulatory capacity, as a powerful state role that distorts the market. The IMF itself flagged these weaknesses in its 2024 consultation with Pakistan, pointing to an “outsized role of the state” and low competition, which undermines growth. This king of structural distortion requires political courage, not just financial support.
Another fault line is the way reforms are implemented. There is often a disconnect between IMF demands and Pakistan’s political realities. Tax reform, for instance, is politically unpopular, especially when they target powerful sectors like agriculture or real estate. These reforms require not just policy change, but social consensus – and until that consensus is built, the risk is that conditionality breeds resentment rather than reform.
Pakistan must shift its mindset form bailout dependency to system-strengthening. IMF programs come with tough conditions, but what’s worse is our own resistance to change: weak revenue collection, entrenched state interest, and a narrow focus on short-term fixes. Unless we address those, IMF loans will always feel like a lifeline tied to a millstone.
So, what should Pakistan do? First, it must reshape its fiscal architecture. Broadening the tax base, especially by taxing under-taxed sectors and strengthening tax administration, is non-negotiable. Without a fair and efficient tax system, Pakistan cannot reduce its reliance on external borrowing or invest in its future.
Second, Pakistan must implement structural reforms that prioritize productivity, not consumption. This includes reforming state-owned enterprises, liberalizing markets, and reducing state intervention. Encouraging private investment, especially in technology and human capital, will create more stable sources of growth that don’t rely on debt.
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Third, Pakistan must strengthen governance and institutions. A culture of accountability, transparency and merit-based public sector management must be cultivated. Only strong institutions can effectively absorb reform, mobilize public resources, and withstand political cycles.
Forth, the Pakistani political class needs to treat reform as a national priority, not a bargaining chip. Reforms linked to IMF programs often get lost amid political maneuverings. But, sustained reforms – even outside IMF cycles – is what builds credibility, reduces risk and ensures that future bailouts become less necessary.
Finally, Islamabad should diversify its external partnerships and reduce overreliance on any single source of financing. While IMF plays a vital role, Pakistan must also mobilize capital form multilateral banks, bilateral partners and provide investors wo value structural reforms and long-term stability.
To conclude, Pakistan is not a victim of the IMF – it is a captive of its own system. The IMF offers hope, not a guarantee. What determines whether we succeed or fail is not the next bailout, but whether we build a system strong enough to outgrow our need for one. Only then can we end the cycle of debt, restore our economic independence and chart a future rooted in sustainable growth.
*The views expressed in this article are the authors’ own and do not represent TDI. The contributor is responsible for the originality of this piece.
Mubashar Sharif
Mubashar Sharif is a student of International Relations, and can be reached at mubasharshareef95@gmail.com
