Recently, reports indicate that Pakistan and the International Monetary Fund (IMF) have reached an agreement on three critical policy measures: devaluing the currency, liberalizing the foreign exchange regime, and increasing interest rates. I previously examined these issues in my article titled “Crisis in the Gulf,” where I provided a comprehensive analysis. From my perspective, pursuing this course could result in significant difficulties for Pakistan’s economy, particularly affecting the common people.
We are currently confronting a mix of inconsistent policies, high taxation, ineffective negotiations, currency devaluation, rising inflation, and reforms that appear stagnant. Instead of addressing the core economic challenges, these policies often aim merely to improve numerical indicators, leaving underlying issues unresolved. Conversely, the burden is unfairly transferred to the public and the business sector. Similar measures were implemented in FY18 and FY22, justified at the time by import-led growth, IMF intervention, and a conventional approach of slowing economic growth, complemented by interest rate hikes and substantial PKR devaluation, which adversely affected the masses. However, this time, it appears to be a mere compliance with IMF directives amidst the Gulf crisis. Let us evaluate each issue objectively, beginning with currency devaluation.
Is there any justification for devaluation? Pakistan’s central bank acquired USD 26 billion over three years and even recorded a current account surplus after a substantial deficit of USD 17.7 billion three years prior. Therefore, there appears to be no valid justification for devaluation. In fact, the currency’s exchange rate is approximately Rs. 253/USD, whereas the State Bank of Pakistan’s rate is Rs. 279/USD, suggesting that the currency should have appreciated rather than devalued. Export performance has been stagnant for years; data over the past decade shows that exports have remained within a narrow range, peaking at USD 32.5 billion in FY22 at an exchange rate of PKR 177/USD, and reaching USD 32.4 billion in 2024 at PKR 274/USD. This indicates that devaluation has not effectively enhanced export earnings.
To support exporters, it would be more beneficial to facilitate their operations, such as through tax incentives or tariff reductions, rather than pursuing currency devaluation. It is important to remember that for every USD 100 in exports, approximately USD 70 covers imported materials, USD 10 is retained overseas for operational expenses, and some transactions go unnoticed, like me-to-me exports and imports. If exporters remit 20 percent of their earnings, revaluing the currency at Rs. 253/USD and providing a small margin such as Rs. 5 to 7 per USD, could be achieved through other measures like tax or tariff incentives. We also need to prevent exporters from holding these earnings abroad, encouraging reinvestment within Pakistan, akin to the approach adopted by Bangladesh. Export promotion bank accounts should be established within Pakistan and subject to periodic audits.
Many unregulated digital foreign exchange banks operate via mobile applications and social media platforms in Pakistan, where substantial deposits are maintained without tax reporting. The State Bank of Pakistan should regulate these platforms and collaborate with international partners to obtain information regarding the investments of Pakistanis held therein.
Pakistan’s agreement with the IMF to devalue the currency has already resulted in a Rs 25 decline, causing inflation to increase by approximately 5 percent. The current rate of Rs 279/USD was predicted to be around Rs 253/USD; thus, inflation already elevated prior to recent oil shocks. Further devaluation could exacerbate inflation by an additional 6 percent, with a 10 percent devaluation potentially raising inflation to 17–18 percent due to rising oil prices.
Regarding remittances, illicit transactions such as hawala and hundi may rise if the Government does not promote legitimate channels. Implementing a tax-free bonus of 10 rupees per dollar sent through banking channels would incentivize legal inflows, potentially increasing official remittances by USD 4–5 billion annually.
The IMF also advocates for liberalizing the currency, allowing unlimited outward remittances and simplifying foreign exchange transactions. Currently, these are capped at USD 100,000 per person per year, which is very high; many countries restrict outward remittance to less than USD 50,000. Tightening inward remittance limits could save between USD 1 to 2 billion annually. Surprisingly, the IMF is impeding access to funds that are compliant with FATF regulations and are stored abroad by tax evaders. Currently, the limit under section 111 of the Income Tax Ordinance 2001 is Rs 5 million. Raising this cap to USD 100,000 could mobilize an additional USD 20 billion.
Additionally, the Government intends to revise the Roshan Digital Account policy, permitting Pakistanis to repatriate foreign currency deposits under previous amnesties amid precarious circumstances abroad, and to attract foreign investments. I advise caution with this approach, as such investments may be transient, similar to the hot-money influx following COVID-19. It is prudent to avoid policies that promote short-term capital inflows, as their rapid repatriation could be detrimental.
Increasing interest rates is another measure under consideration. Following a 10 percent devaluation, inflation could rise by approximately 6 percent; thus, raising interest rates proportionally could help control inflation but would also increase debt servicing costs by roughly Rs. 2 trillion (net of SBP profits) and could inhibit economic growth, potentially necessitating higher taxes to sustain public finances.
Reforming the tax system encounters resistance from influential groups and is often hindered by political and economic lobbying. Despite reports from organizations such as the World Bank, McKinsey, and the Reforms and Resource Mobilization Commission on which I served as Minister of State reforms progress slowly and partially. To attain genuine economic progress, Pakistan must end its dependence on IMF support. Our current IMF agreement concludes in September 2027, and the Prime Minister has stated that Pakistan will not seek another IMF programme. This presents an opportune moment to implement policies tailored to Pakistan’s actual needs, rather than remaining constrained by onerous IMF conditions.
After settling obligations of USD 3.5 billion to the UAE and approximately USD 1 billion in Eurobonds, Pakistan’s external financing requirements are estimated at around USD 23 billion, including rollover obligations of USD 15 billion, with the remaining USD 8 billion potentially covered by the State Bank of Pakistan. Given that Pakistan managed to accumulate a surplus of USD 26 billion over three years, it raises the question of why IMF assistance remains necessary. Facilitating inward remittances of USD 100,000 per individual could generate USD 20-24 billion annually, rendering further IMF reliance unnecessary.
Finally, our efforts for peace and strong leadership can help us negotiate long-term rollovers from China and Saudi Arabia to stabilize our foreign reserves.
In conclusion, the initial step should be to withdraw from the IMF programme. Historical participation in 23 programmes, excluding one in 2013, demonstrates that reliance on IMF guidance has not fostered economic stability and has instead intensified economic hardships. It is imperative to declare that this will be Pakistan’s final IMF engagement and to pursue an independent economic trajectory.
Copyright Business Recorder, 2026
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