Argentina’s economic turnaround: a comparison with Pakistan and key lessons

In a stunning reversal of fortunes, Argentina under President Javier Milei has transformed from the brink of economic collapse to a burgeoning recovery within just over a year.

Elected in late 2023 amid hyperinflation, massive fiscal deficits, and stagnant growth, Milei implemented aggressive “shock therapy” reforms that defied conventional wisdom. By mid-2025, inflation had plummeted from 211 percent in 2023i to 43.5 percent, the fiscal deficit was erased, and GDP growth surged to 7.6 percent year-on-year in Q2.

This essay explores Argentina’s crisis, reforms, outcomes, and challenges, drawing parallels with Pakistan’s ongoing economic struggles. Pakistan, facing similar issues of high inflation, debt dependency, and low growth, stands at a crossroads. Through comparison, key lessons emerge for Pakistan: the need for bold fiscal consolidation, a very deep cut in the bureaucracy and government footprint, strategic deregulation, and a strict austerity to foster sustainable development.

Argentina’s economic woes were decades in the making. Once a prosperous nation in the early 20th century, Argentina descended into cycles of populism, debt defaults, and inflation fuelled by excessive government spending, subsidies, and protectionism. By 2023, the country was grappling with a 211 percent annual inflation rate, a fiscal deficit exceeding 4 percent of GDP, and negative growth. Poverty affected over 40 percent of the population, and the peso had lost significant value against the dollar. The Peronist government’s policies, including price controls and expansive welfare programs, exacerbated the crisis, leading to nine IMF bailouts since 1958. Milei, a libertarian economist and outsider, campaigned on radical change, promising to “chainsaw” bureaucracy and embrace free-market principles.

Upon taking office in December 2023, Milei unleashed a series of shock measures. He devalued the peso by 54 percent, slashed subsidies on energy, transport, and utilities, deregulated key sectors, and reduced the number of government ministries from 18 to 9. Over 45,000 public sector jobs were cut (while Pakistan needs to cut bureaucracy and manpower by more than 50 percent), and export taxes were lowered to boost competitiveness. These reforms aimed to achieve fiscal surplus, stabilize the currency, and attract foreign investment. By early 2025, the government reported a primary fiscal surplus for the first time in years, and monthly inflation fell below 2 percent by June. Economic activity rebounded, with April 2025 showing 7.7 percent year-on-year growth and a 1.9 percent month-on-month increase, surpassing forecasts. The World Bank projected 5.5 percent growth for 2025, crediting Milei’s policies for restoring confidence.

However, the turnaround was not without pain. Subsidy cuts caused electricity and fuel prices to skyrocket, eroding purchasing power and pushing poverty rates higher initially. Real wages dropped sharply, and unemployment rose as public sector layoffs took effect. Protests erupted, with unions decrying the austerity as “brutal.” Despite this, Milei’s approval ratings hovered around 50 percent by mid-2025, buoyed by visible inflation relief. Challenges loom: mid-term elections in October 2025 could test his mandate, and negotiations for a new IMF programme are critical to refinancing debt. Critics argue the recovery is fragile, reliant on commodity exports and vulnerable to global shocks.

Pakistan’s economy in 2025 echoes Argentina’s pre-Milei despair. With a GDP estimated at $2.06 trillion in PPP terms, growth is sluggish at 2.5-2.8 percent, far below the 7 percent needed for job creation in a population of 240 million. A recent report by the World Bank has highlighted 44 percent under the poverty line and more than 20 percent unemployment, surely frightening data and if no real action taken a harbinger of social breakdown. Inflation has eased to around 5-6 percent, but fiscal deficits persist due to high debt servicing (nearly 50 percent of budget), inefficient subsidies, and low tax collection (11 percent of GDP). The Asian Development Bank forecasts 2.5 percent growth for FY2025, hampered by weak investment (15.5 percent of GDP) and structural issues like energy shortages and political instability. Pakistan has relied on 24 IMF programs since 1958, mirroring Argentina’s dependency, with the latest $7 billion bailout in 2024 conditioning reforms on energy tariffs and privatization. Some of the reforms underway in the energy sector are not only irrational and possibly even counter-productive like the ones in the gas sector and need a serious rethink.

Both countries share historical parallels: long periods of military rule, boom-bust cycles driven by populism, over-reliance on subsidies, and external debt. Argentina’s Peronism finds echoes in Pakistan’s patronage politics, where subsidies on electricity and fuel distort markets and drain resources. In 2023, Argentina’s subsidies equalled 5 percent of GDP; Pakistan’s energy subsidies hit PKR 1.5 trillion annually, fuelling circular debt. Inflation has plagued both—Pakistan’s peaked at 38 percent in 2023—stemming from loose monetary policy and fiscal profligacy. Low productivity is another commonality: Argentina’s stagnated due to protectionism, while Pakistan’s hindered by poor education, lack of policy continuity, irrational decision making and poorly designed and economically unjustified government spending. The poison pill reliance on workers remittance $ 38 billion this year, to meet forex requirements kills any desire for productivity improvements or innovation.

Yet, differences are stark. Argentina’s reforms have been swift and unilateral, leveraging Milei’s executive decrees to bypass a fragmented Congress. Pakistan’s approach is gradual, IMF-mandated, and often diluted by political compromises. While Milei slashed bureaucracy aggressively, Pakistan’s privatization efforts (e.g., PIA) drag on amid resistance. Argentina benefits from commodity exports (soy, lithium), providing a buffer; Pakistan’s textile-dependent economy is more vulnerable to global demand slumps and the uncertain Trump tariffs. Socially, Argentina’s higher human development index (0.849 vs. Pakistan’s 0.544) offers a stronger safety net base, mitigating austerity’s impact.

A striking contrast lies in government size and intervention. In Argentina, Milei’s administration drastically reduced the state’s footprint, shrinking ministries from 18 to 9 and eliminating up to 48,000 public sector jobs by May 2025—a 9.6 percent reduction in staff—leading to higher unemployment (7.9 percent in early 2025) but enabling fiscal surplus. This “chainsaw” approach dismantled bureaucratic layers, closing 250 secretariats and fostering efficiency. Conversely, Pakistan’s government footprint continues to expand through regulatory overreach, salary hikes (10 percent increase for bureaucracy in July 2025), and persistent state-owned enterprises, despite IMF pressures to abolish vacant positions and lay off surplus staff.

The lessons from Milei’s Argentina for Pakistan are profound and actionable. First, bold fiscal consolidation is essential. Argentina’s rapid deficit elimination through spending cuts demonstrates that short-term pain can yield long-term stability. Pakistan should prioritize, reducing the size and ambit of the bureaucracy, tax reforms, broadening the base beyond the salaried class and digitizing collection to raise revenue from 11 percent to 15 percent of GDP by 2030. Learning from Argentina’s subsidy overhaul, Pakistan must phase out untargeted energy subsidies, replacing them with direct cash transfers via programs like Benazir Income Support to protect the vulnerable.

Second, deregulation and market liberalization can unleash growth. Milei’s removal of price controls and export barriers boosted agriculture; Pakistan could deregulate its over-protected sectors, easing business regulations (Pakistan ranks 108th in World Bank’s Doing Business) to attract FDI, which fell to $1.5 billion in 2024. Privatizing loss-making state enterprises like Steel Mills would reduce fiscal drag, as Argentina’s job cuts did.

Third, political will and communication are crucial to sustain reforms. Milei’s transparency about hardships maintained public support; Pakistan’s leaders must build consensus across parties to avoid reversals, as seen in Argentina’s past. Investing in social safety nets—expanding education and health spending—can cushion austerity’s blow, preventing the poverty spikes Argentina experienced.

Finally, avoid populism’s traps. Argentina’s history of debt defaults (nine times) warns Pakistan against short-term borrowing sprees. A strong and effective move to build an exports driven economy can provide resilience. International partnerships, like CPEC with China, should emphasize productivity over debt.

In conclusion, Argentina’s Milei-era revival proves that decisive action can break vicious cycles, but at a social cost. For Pakistan, adopting similar boldness—tempered by inclusive policies—could accelerate growth to 7 percent by 2030, reducing poverty and stabilizing the economy. The key is execution: without it, Pakistan risks Argentina’s pre-2023 fate of perpetual crisis.

Copyright Business Recorder, 2025