A widely divergent narrative on the state of the economy is by now visibly apparent between the assessment by the general public and those loyal to the government.
It is critical to understand the reasons for the divergence with the objective of converging the two narratives, thereby not only ensuring widespread support for the ongoing harsh upfront International Monetary Fund’s (IMF’s) reform agenda but, going forward, to pre-empt the possibility of socio-economic unrest that has led to political upheaval in three South Asian countries – Sri Lanka, Bangladesh, and Nepal.
The government’s focus is largely on cyclical balance of payments’ issues (due to the increase in economic volatility over time as per the IMF’s 10 October 2024 staff level report based on a “tight correlation between Pakistan boom bust economic outcomes and its macroeconomic policies”) that compelled administration after administration to seek an IMF loan (the country is currently on its twenty-fourth loan) with associated harsh politically challenging conditions. These have become harsher and increasingly upfront over time, as administrations promptly abandoned reforms as soon as foreign exchange reserves reached a level considered sufficient to provide an anchor to the external and internal value of the rupee. This is notwithstanding the fact that reserves are at a high of 14,440 million dollars (as of 10 October 2025) though they are entirely sourced to foreign debt.
Balance of payments is a record of all economic transactions between Pakistanis and other nationalities and comprises of three accounts: current account (trade balance), financial account (investments) and capital account (transfers including loans and repayments as and when due). Thus, the components of balance of payments (of little interest to the general public) do impact significantly on general well-being.
The government’s claim today is that stability has been achieved in the balance of payments – the trade balance is down (though it has begun inching up again as import controls are loosened to facilitate the domestic productive sectors reliant on import of raw material and semi-finished goods), the financial account has improved (the government is remitting profits of foreign companies doing business in the country though the Chinese Independent Power Producers continue to lament non-payment of dues, estimated at a little under half a trillion rupees in August 2025, with the government seeking a waiver of late payment surcharge of over 200 billion rupees) and, last but not least, capital account has strengthened with net inflows as opposed to net outflows due to easier access to borrowing from abroad (attributed to changing geopolitical considerations was well as an improvement in our rating though the country remains below the investment grade level).
So what data release is being considered by the public at large? Two major macroeconomic indicators released by the Pakistan Bureau of Statistics (PBS) have the most relevance for the common man – inflation and unemployment. Both have shown a marked improvement, and yet anecdotal surveys throughout the country reveal that they are not being taken into account by the public.
The reason is three-fold. First, each household has a consumption pattern based on family needs, for example with two schoolgoing children a higher monthly outlay on education may be required that is not reflected by the weightage given by the PBS to education.
Secondly, the incomes of those engaged in the private sector (accounting for 93 percent of the total employed in the economy) have not witnessed a rise in incomes commensurate with inflation for the past five to six years due to low output growth has been mainly backed by higher wholesale and retail trade (with lower inventories and smuggled items rather than a rise in output).
And finally, data credibility is suspect given periodic allegations of data manipulation, particularly in terms of inflation and output, to show an improvement that reflects well on the economic team leaders’ performance that remains unfelt by the general public.
IMF in its ongoing 7 billion-dollar Extended Fund Facility programme tacitly endorsed this view by arguing in its 10 October 2024 documents that while “data provided to the Fund is broadly adequate for surveillance in most areas, but there are weaknesses in the National Accounts (NA) and Government Finance Statistics (GFS) that somewhat hamper surveillance….important shortcomings remain in the source data available for sectors accounting for around a third of GDP, while there are issues with the granularity and reliability of the GFS.
The authorities are prioritizing addressing these weaknesses, supported by Fund Technical Assistance (TA) on the GFS and a new PPI index.” The TA became effective 1 July 2025 and is scheduled for completion by end June 2026 therefore it is too early to evaluate its success or failure.
Be that as it may, it is relevant to note that TA recommendations have to be implemented for best results, and this is not always the case. One has only to evaluate the Access to Justice Programme by the Asian Development Bank to conclude that it was a resounding failure.
Anecdotal surveys indicate that the general public discontent against the handling of the economy is on the rise. The government as well as the IMF fully cognizant of this trend, reflected by the World Bank’s calculation of our poverty levels reaching a high of 44.7 percent (for a mid-income country defined as 4.2 dollars per day rather than low income country with 3.20 dollars per day) has been emphasizing the need to strengthen the Benazir Income Support Programme (BISP) but with one proviso: subject to fiscal space. That remains extremely narrow, with the government focusing on raising revenue rather than reducing expenditure.
What is recommended is an urgent revisit of the following government policies: (i) reliance on indirect taxes continues to be between 75 and 80 percent of total collections whose incidence on the poor is greater than on the rich – the focus must shift to ability to pay taxes; (ii) current expenditure must be reduced by at least a trillion and a half rupees to provide the Federal Board of Revenue time to transition from indirect to direct taxes; (iii) merging social sector programmes into BISP, an IMF recommendation, inclusive of flood relief, electricity and food subsidies, are being resisted by provincial capitals (mostly for political reasons) and it is hoped that provincial concerns are proactively dealt with; and (iv) BISP does not include the male unemployed and with unemployment on the rise, 22 percent as per the PBS’s recent first ever digital Household Survey, there is a need for redefining a beneficiary household.
Copyright Business Recorder, 2025.