Stability without growth: IMF programmes and policy challenges for Pakistan

The decision to enter another IMF arrangement has been a subject of persistent debate in Pakistan. Pakistan has been 24 times with the IMF over the years to restore its macroeconomic vulnerabilities. This reliance prompts significant questions: Why have these programmes failed to translate short-term macroeconomic stability into sustainable economic growth?

Second, and equally important: why do these interventions focus solely on short-term stabilization rather than long-term growth? Growth certainly requires stabilization, but it is insufficient on its own.

Each IMF programme in Pakistan has treated stabilisation as the primary focus rather than keeping it as the foundation of a deeper structural transformation.

As a result, each programme has been marked by a brief period of stability followed by a period of crisis, which raises concerns about programme design, implementation fidelity, political economy limitations, and structural growth barriers.

The IMF and Pakistan’s ongoing agreement aims to restore stability in the economy. A recent assessment shows satisfactory progress; by the end of June, six of the seven performance criteria (PCs) had been met.

The primary balance surplus was achieved, and GDP growth in FY2025 was 3 percent, meeting the target. Macroeconomic indicators remained stable.

The rupee stayed stable, gross reserves surpassed the targets, and the interbank and open market premium remained small.

Policy rate was lowered by 50 basis points to 10.5 percent at the last meeting and was maintained at the most recent meeting. Overall tax revenue is still below the target but increased by 26 percent and remains historically high.

Despite these stabilization gains, many vulnerabilities remain elevated. Gains in key sectors, particularly agriculture, have been reversed by floods. The IMF forecasted that due to the negative effects of the flood, the current account is expected to have a small deficit. However, it is expected to bounce back and reach its goal in FY27. Remittances inflows remain high in the country, providing a significant external buffer, yet imports surge due to tariff rationalization, and climatic shocks pose severe risks.

More critically, Pakistan’s gross financing needs continue to be exceptionally high, and high interest payments, which constitute a major portion of the total federal budget, severely limit fiscal space, dispense with social and development spending, and increase vulnerability to macroeconomic shocks. This shows headline indicators improve during stabilization, but resilience does not.

Besides economic fragility, climatic risks also remain elevated. The recent flood has caused more agricultural damage than expected, and if it spills over into the industrial and services sectors, it could push inflation higher, reduce government revenue, and add pressure to government spending. Furthermore, rising social unrest, geopolitical tensions, and global inflation may exacerbate vulnerabilities and increase the likelihood of another cycle of crisis.

Another important question is how to make sure that domestic growth strategies are in line with the IMF’s loan conditions so that efforts to stabilize the economy lead to long-term economic growth instead of just fixing current macro imbalances.

IMF stabilization programmes have focused on addressing demand side imbalances but have not adequately addressed supply side limitations. Strategies such as reserve rebuilding, currency depreciation, and fiscal consolidation are necessary to rectify existing macroeconomic imbalances; however, they fail to tackle the fundamental structural deficiencies that perpetuate ongoing economic crises.

Stabilization efforts leave the economy vulnerable to future crises unless reforms are implemented to address the fundamental constraints.

Pakistan’s export base is still small because production is not growing. Despite rupee devaluations exports have stayed at about 9% to 10% of GDP, which is much lower than peers like Bangladesh and Vietnam. This demonstrates that the core barriers to growth are low productivity, a lack of human capital, and structural inefficiencies. There is an urgent need of targeted policies that will boost production in export oriented manufacturing and services, while addressing structural constraints, enhancing human capital, and expanding export base.

Human capital deficit, is also a critical issue in Pakistan despite macroeconomic stabilization. Pakistan even lags behind peer economies such as Vietnam and Bangladesh in terms of health, education outcomes, and female labour force participation. Evidence from HIES 2024-25 and LFS 2024-25 demonstrates that households prioritize cutting back on healthcare and education during fiscal tightening, which directly undermines long term productivity.

Social protection becomes more than just a welfare tool at this point. Stable household consumption, protection of human capital investments during adjustment, and encouragement of labor market participation are all possible with well-designed social protection. However, failure to meet social spending floors, such as the BISP spending target under the 24th EFF, indicates that households are bearing a disproportionate share of the adjustment costs. As a result, the foundations of long-term growth are weakened.

The EFF framework already recognizes social protection as a key part of stabilization, but implementation gaps remain. Cash transfers have expanded, yet poverty remains high, and links between skills, education, and job outcomes remain weak. If social protection isn’t integrated into a broader growth plan, fiscal adjustment could end up harming society and the economy.

With stabilisation concept Pakistan’s economy has been growing in a “stop-start” pattern: it improves for a while, then worsens again.

The lesson is clear: stabilization alone, without growth, is just a cycle, not a solution. IMF’s conditions must support long-term structural reforms that increase productivity, diversify exports, and build human capital, in addition to short-term macroeconomic fixes.

In the absence of tangible policy tools or institutional changes, calls to “increase exports” or “improve human capital” sound good on paper but don’t lead to sustainable growth. Linking stabilisation measures with growth-oriented policies, would lessen the country’s recurrent dependency on IMF and set the stage for long-term domestic progress.

Copyright Business Recorder, 2026