The KSE-100 index has surged by 1,400 points. The finance minister radiates confidence. The prime minister has expanded the federal cabinet to 27 members, doubling its size from just over a year ago. Meanwhile, markets expect the State Bank of Pakistan to accelerate monetary easing, potentially halving interest rates from last year’s levels—at a pace unmatched globally. And why not? According to Bloomberg, Pakistan is set to clear the ongoing IMF program review without difficulty.
But this is not an inquiry into whether Pakistan has fulfilled its program benchmarks. Nor is it a debate over the credibility of the CPI decline, the sustainability of the 7MFY25 current account surplus, or the plausibility of achieving a 12-month primary surplus. It is also not a critique of the missed tax collection target, the delayed implementation of agricultural income tax, or the failed TajirDost scheme. Rather, this is a hypothetical assessment of the IMF program’s trajectory—from the Fund’s vantage point.
Many contend that the IMF’s core mandate as lender of last resort is to avert balance of payments crises. If rescuing a country of 240 million from default requires enforcing strict quantitative targets, so be it. But the IMF is not a caretaker. Without political will from within a state’s power centers to enact deep structural reforms, no external program can deliver lasting change.
Failing or delaying the IMF review at this stage would certainly risk unraveling fragile macroeconomic gains and compounding the burden on ordinary citizens. However, the incessant self-congratulation by Pakistan’s leadership in recent months betrays a dangerous overconfidence. For its part, the IMF may be better served by keeping that swagger in check.
The Fund’s negotiators know Pakistan’s institutional players well. After overseeing more failed programs here than in any other country, they are well-versed in the cyclical pattern of half-hearted reforms and political expediency. Whether dealing with political parties, the bureaucracy, or the military establishment, there is little reason to expect meaningful structural transformation from any quarter.
Even after the worst balance of payments crisis in its history, Pakistan’s ruling order remains no closer to addressing the root causes of economic dysfunction. One year into its tenure, the government’s focus remains on extracting more from the already-taxed formal corporate and salaried sectors while steering clear of genuine public sector reforms.
As long as the current arrangement lurches forward, why should the IMF press for more? If the endless declarations of “successful stabilization” are any indication, policymakers seem convinced the worst is over. The binge may be paused, but sobriety is unlikely. And when the next crisis hits, history suggests it will simply mean more business for the Fund.
But relapses are not infinite. Eventually, one proves fatal.
It is increasingly evident that any serious change to Pakistan’s governance model will come through external pressure or domestic upheaval. Between the two, creditor intervention is unpleasant, but it is preferable to a breakdown of social order. Particularly for the IMF.
Still, perhaps those inside the Fund share the same misplaced optimism as Pakistan’s elite. Perhaps they believe the crisis can be deferred a little longer. But is there really no incentive to apply greater pressure now?
There is. Pakistan’s chronic inability to complete extended programs is not only a national failure but an institutional headache for the IMF itself. Every unfinished program reflects poorly on the Fund’s own credibility. Bureaucratic incentives exist on both sides. For IMF staff and program architects, persistent underperformance in Pakistan is a lingering stain. And if there is a moment to force the issue, this is it.
Consider the alternative. If Pakistan coasts through the next review—or even the one after—without advancing critical reforms, the government will continue leaning on the same narrow tax base. Investment will falter. Growth will remain elusive. Revenues will climb only to feed an overstaffed and underperforming state apparatus, while the development budget is sacrificed to maintain bloated payrolls and loss-making enterprises. On paper, fiscal targets may be met. But to what end?
Meanwhile, pressure will mount from the usual quarters: political financiers, contractor lobbies, vote banks, and coalition partners. The ruling party has nearly exhausted its political capital in pursuit of macroeconomic stabilization. Sooner or later, calls to reopen the spending taps will grow impossible to ignore. With elections approaching, the temptation to loosen fiscal discipline in the name of political survival will become irresistible.
This is the pattern. When forced to choose between program suspension and electoral defeat, Pakistan’s politicians have always opted for the exit ramp. The crises of 2022, 2018, and 2007 stand as recent evidence.
Allowing this program to unravel 18 months from now under the weight of political necessity would be an entirely predictable failure. The smarter play for the IMF is to exert maximum leverage now, while momentum—however faint—still exists.
The idea that Pakistan’s 240 million citizens can count on the country’s ruling elite to “do the right thing” has been thoroughly discredited. The sacrifices of the past three years have come at a staggering cost, with real wages pushed back a decade. Letting that pain serve no purpose would be indefensible.
The IMF’s upcoming review must not become a rubber stamp. Policymakers must be forced to deliver. The federal budget should mark a turning point: comprehensive structural reforms, not more spending, must define the next phase. Meeting revenue and deficit targets is no longer enough. Without real change—shrinking government, broadening the tax net, overhauling public expenditures—the same vicious cycle will continue. But next time, there may be no bailout waiting at the end.
The window for incrementalism has closed. Either the state restructures itself or, eventually, it collapses. And if Pakistan’s leaders refuse to act, the IMF has every reason—and every responsibility—to ensure they have no alternative.
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