With limited access to external funding, government debt has increasingly been taken up by the banking sector and, as a result, banks’ holdings of domestic government debt has surged to around 60 percent of their assets, i.e., more than three times the average for Emerging Market Economies. With a limited depositor base, the banks have mainly financed the government’s additional demand for funds through liquidity provided by the State Bank of Pakistan (SBP) via Open Market Operations (OMOs).
With government credit more attractive than private lending, this has significantly crowded out the latter. Moreover, the balance sheets of the three parties, the sovereign (government), commercial banks, and the central bank have become highly interconnected.
This complex tripartite relationship means that developments or actions in one domain (e.g., fiscal, monetary policy and the banking sector) can have wide-ranging effects across the economy. It also significantly affects the strength of monetary policy transmission by impinging the relationship between policy rates, private credit, and private investment and consumption decisions—IMF Country Report No. 24/310
The Ministry of Planning and Development has introduced the ‘Uraan Pakistan’ plan, envisioning Pakistan as a US$1 trillion economy by2035. This ambitious vision aims to propel the country towards economic transformation, focusing on industrial productivity, technological advancement, and fiscal reform.
While this plan offers a bold outlook for Pakistan’s future, its feasibility and enforceability are questionable, given the country’s heavy dependence on external financial assistance and its adherence to the ongoing International Monetary Fund (IMF) programme.
Pakistan’s realities amid current fiscal and economic position cast substantial doubts on achieving theabove targets without addressing deeper structural issues and challenges posed by a debt-driven growth.
Pakistan’s perpetual engagements with IMF under the Extended Fund Facility (EFF) programmes, amongst others, highlight the precarious state of its economy. With access set at SDR 5,320 million (approximately USD7 billion) and IMF exposure expected to peak at SDR 8,774 million (432% of quota) by 2027, the financial risks for Pakistan are enormous and intricate.
The country’s gross reserves, projected to rise from US$12.8 billion in fiscal year (FY) 2025 to US$22.5 billion by FY2028, remain modest at only 3.1 months of import coverage. Without IMF’s support, these reserves would decline by US$1.06 billion, underscoring the fragility of Pakistan’s external position. Such dependency reveals and exposes the economy’s underlying structural weakness and raises critical concerns about its ability to sustain itself without continuous external support.
‘Uraan Pakistan’ plan sets ambitious fiscal targets, including enhancement of tax-to-GDP ratio from the current 9.3% to 15.5% by FY2029 and reducing fiscal deficits from 7.8% to 4.2% over the same period. However, these targets hinge on comprehensive tax reforms and revenue mobilization—both have historically faced formidable resistance in Pakistan.
The informal economy, tax evasion, and a narrow tax base continue to hinder revenue collection. Additionally, public debt, which stood at 74.8% of GDP as of FY2023, places immense pressure on the fiscal space available for development. IMF has stressed fiscal consolidation as a priority, but achieving this within the existing economic framework appears perplexing.
A critical component of ‘Uraan Pakistan’ is its emphasis on external financing to drive growth. Commitments of US$16.8 billion in short-term financing rollovers and US$2.5 billion in additional funding for FY2025 from bilateral and multilateral partners demonstrate Pakistan’s continued reliance on external debt. While these commitments provide immediate relief, they perpetuate a cycle of dependency that weakens long-term sustainability.
Foreign direct investment (FDI), which could serve as an alternative to debt-driven growth, remains at an abysmal 0.7% of GDP. This lack of investment stems from poor governance, political instability, and anti-business, anti-growth unfavourable environment.
A detailed and critical study of ‘Uraan Pakistan’ confirms that it has failed to adequately address these systemic issues, focusing instead on large-scale infrastructure projects that lack required investment and expertise, clear pathways for sustainable funding or noteworthy economic returns.
Balance of payments position is another critical vulnerability. Exports have stagnated at 8.2% of GDP, while trade deficit stands at 7.3% of GDP. Despite efforts to reduce this deficit to 5% by FY2029, delay in opting for structural reforms in key sectors such as agriculture and industry hinder progress. Agriculture, which employs 37.4% of the workforce and contributes 23.2% to GDP, suffers from low productivity and inadequate investment.
The industrial sector also faces challenges such as high cost of energy, excessive taxation, and low-value manufacturing and limited technological advancement. ‘Uraan Pakistan’ proposes ambitious export growth targets, including US$50 billion annually by FY2029, but achieving these figures, without providing requisite infrastructure, skilled manpower and solutions to remove foundational weaknesses, is highly unlikely.
Debt-driven growth, as emphasized in the plan, carries significant risks. Emphasis on infrastructure development, including Special Economic Zones (SEZs) and renewable energy projects, relies heavily on borrowed funds. While these projects may stimulate short-term economic activity, long-term consequences of rising debt are severe. IMF has repeatedly opposed SEZs etc., warned about the dangers of unsustainable debt accumulation, highlighting the need for fiscal discipline and structural reforms. However, ‘Uraan Pakistan’ is prioritizing ambitious goals over realistic and sustainable strategies.
Pakistan is left with no choice, but to adhere to the IMF programme to ensure fiscal stability and avoid economic collapse. EFF programme provides a framework for addressing fiscal imbalances and rebuilding reserves, but it comes with stringent conditions. These include reducing fiscal deficits, enhancing tax collection, and implementing structural reforms. The success of ‘Uraan Pakistan’ depends on its alignment with these conditions. Failure to adhere to IMF programme risks derailing both the economic recovery and the long-term vision outlined in the plan.
In order to achieve sustainable growth and reduce dependency on external debts, Pakistan must pivot towards organic development strategies through these key steps:
i. Increasing agricultural productivity is important as it contributes significantly to GDP and employs a large portion of the workforce, targeted investments in modern irrigation techniques, precision farming, and crop diversification can drive growth. Additionally, developing value chains and aligning agricultural products with global demand will enhance export potential.
ii. Small and medium enterprises (SMEs) must be supported. These enterprises are critical for job creation and economic resilience. Policies that improve access to credit, reduce regulatory hurdles, and encourage innovation can unlock the sector’s potential and promote inclusive growth.
iii. Similarly, export diversification is imperative. Pakistan’s reliance on low-value exports must be reduced. Additionally, investments in technology, pharmaceuticals, and engineering goods can create new revenue streams and enhance the country’s global competitiveness.
iv. Governance and institutional reforms are non-negotiable. Strengthening institutions, combating corruption, and ensuring policy consistency are essential for attracting foreign investment and fostering economic stability.
v. Domestic revenue mobilization must be prioritised. Expanding the tax base, integrating the informal economy, and leveraging technology for tax administration can improve revenue collection and reduce fiscal deficits.
vi. Human capital development is critical, education and skill-building initiatives aligned with global market needs can create a workforce capable of driving innovation and productivity across sectors.
vii. Dependence on external debt should be minimized. Shifting towards equity-based investments, including public-private partnerships, can reduce fiscal vulnerabilities and foster long-term sustainability.
The go-getting ‘Uraan Pakistan’ plan draws an aspiring vision for economic transformation, yet its success hinges on the government’s ability to navigate significant challenges. While the recently completed IMF’s US$3 billion 9-month Stand-by Arrangement (SBA) has delivered much-needed stability, the path forward remains narrow and demanding. Therefore, achieving the plan’s goals requires persistent commitment to sound policies, structural reforms, and strong collaboration with development partners to restore market confidence and ensure debt sustainability.
IMF highlights the need for Pakistan to implement critical reforms, including broadening the tax base, strengthening fiscal institutions, and enhancing energy sector sustainability through cost-based tariffs and effective debt management. It also emphasizes investments in human capital, infrastructure, and social protection is vital for fostering inclusive growth while ensuring fiscal discipline.
All said and done, transitioning from a state-led growth model to a competitive, private-sector-driven economy is essential to reverse economic stagnation and improve living standards. We also urgently need strategic investments for building climate resilience, reforming state-owned enterprises, coupled with transparent governance, and prudent monetary policies—all are crucial for controlling and stabilizing inflation and rebuilding forex reserves.
‘Uraan Pakistan’ agenda indeed offers a corridor to transformation, but its success hinges on national unity, political stabilization,prudent policies, determination, and public support, paving the way for lasting prosperity and financial independence.
Copyright Business Recorder, 2025
The writer is Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996
The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS), member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). She can be reached at [email protected]
The writer is a corporate lawyer based in the US with extensive expertise in financial regulations, including Virtual Asset Service Providers (VASPs), corporate governance, and global economic policies. He holds an LLM from Washington University in St. Louis and has completed the Management Development Program at the Wharton School. He has developed regulatory frameworks for North American and South American Financial Institutions and has consulted and trained bureaucrats of different regions. He can be reached at [email protected]
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