From crisis management to real reform

Pakistan has once again reached a moment of macroeconomic respite. Programme targets have been met, reserves are being rebuilt, the current account has remained broadly manageable, and public debt is projected to decline gradually.

The IMF’s latest country report projects real GDP growth at 3.6 percent in FY2026 and 3.5 percent in FY2027, while public debt is officially projected to fall from 72.8 percent of GDP in FY2025 to 70.1 percent in FY2026. These are positive signals.

But they are not proof of transformation. They show that Pakistan has regained some stability; they do not show that the economy has escaped its crisis cycle.

The real question is simple: will this stability be used to implement difficult reforms, or will it again be treated as enough? Pakistan’s repeated mistake has been to confuse crisis management with reform.

Fiscal tightening, tariff adjustments, exchange-rate flexibility, and monetary discipline can prevent immediate collapse. But they do not automatically create exports, productivity, investment, jobs, or confidence. That requires a deeper domestic reform compact.

The first priority is tax reform. Pakistan cannot finance development, debt reduction, climate resilience, or social protection with such a weak and narrow tax base.

The report rightly identifies the problem: agriculture, real estate, retail, and parts of the services sector remain under-taxed, while petroleum products and documented sectors carry a disproportionate burden.

The GST system is weakened by exemptions, concessions, zero-rating legacies, fragmented taxation of services, and weak compliance.

But the answer should not be another round of ad hoc taxation. Pakistan already taxes the compliant too heavily and the non-compliant too lightly. Real tax reform must focus on five actions: enforce agricultural income tax through provincial-FBR data integration; bring retailers into a simplified digital tax regime; rationalise GST exemptions; tax real estate on realistic valuations; and reduce reliance on withholding taxes and petroleum levies. The objective should be a broader, fairer, and more predictable tax system, not merely higher collections from the same taxpayers.

The second priority is energy reform. Pakistan has often interpreted energy reform as raising electricity, gas, and fuel prices. Cost recovery is necessary; the country cannot afford to build new circular debt through under-pricing. But tariff hikes alone are not reform. Passing inefficiency to consumers protects sector accounts while hurting households and weakening the industry.

The real test is cost reduction. This requires reducing transmission and distribution losses, improving DISCO governance, enforcing bill recovery, rationalising capacity-payment pressures, reforming gas pricing, and addressing RLNG contract rigidities. Private-sector participation in DISCOs should be pursued with clear performance benchmarks, not as a cosmetic change of ownership. Tariff design must protect lifeline and vulnerable consumers, while industrial tariffs should become more predictable and regionally competitive. Energy reform should reduce the cost of doing business, not merely raise the cost of survival.

The third priority is debt management. Pakistan’s debt may appear sustainable under baseline projections, but the risk of sovereign stress remains high. This is because financing needs are large, reserves are still limited, banks are heavily exposed to government securities, and contingent liabilities from energy and state-owned enterprises can quickly reappear in the fiscal accounts. Debt sustainability is therefore not secured by arithmetic alone; it depends on credibility.

Pakistan needs a debt strategy that reduces rollover risk, lengthens maturities, diversifies the investor base, and deepens the domestic bond market. The sovereign-bank nexus must be reduced gradually so that banks finance private investment rather than mainly financing the government. Fiscal risk reporting should be strengthened by regularly disclosing guarantees, circular debt obligations, SOE losses, and public-private partnership liabilities. Hidden liabilities are still liabilities; ignoring them only makes future adjustment more painful.

The fourth priority is reform of state-owned enterprises and procurement. Pakistan cannot continue to finance inefficient public entities through guarantees, subsidies, arrears, and repeated bailouts. SOE reform must move from announcements to execution. Commercial SOEs should either be restructured and privatised, or closed where there is no clear public purpose. Boards should be professional, accounts transparent, and performance contracts enforceable. Public procurement should be fully competitive, digital, and transparent, with limited exceptions. Preference for public entities in procurement should not become a backdoor subsidy.

The fifth priority is export and productivity reform. Stabilisation without growth will produce fatigue. Pakistan cannot sustain external stability through import compression, remittances, and borrowing alone. It needs a production and export strategy. This means reducing anti-export bias in tariffs, improving logistics, ensuring timely refunds, lowering regulatory uncertainty, supporting skills development, and linking industrial policy with productivity targets. Export policy should move from general slogans to product-market strategies: which products, which markets, which firms, which constraints, and which public actions?

Geopolitical risk makes this agenda urgent. Pakistan is a net energy importer and remains exposed to oil-price escalation and supply shocks from the Middle East. A sharp rise in oil prices would widen the import bill, pressure the current account, weaken the exchange rate, raise domestic fuel and electricity prices, and complicate inflation management. If the government absorbs the shock through subsidies or delayed price adjustments, fiscal space will shrink further. Energy efficiency, fuel conservation, strategic reserves, targeted support, and export growth are therefore not side issues; they are macroeconomic safeguards.

The sixth priority is social protection and human capital. Reform cannot survive if it is seen only as higher taxes and higher tariffs. In a fiscally constrained economy, the state cannot protect every price, but it must protect vulnerable people. BISP, Kafaalat, health, education, nutrition, and targeted transport support should be treated as core reform instruments, not residual spending. At the same time, social protection must be better targeted, regularly updated, and linked where possible with school attendance, nutrition, skills, and women’s economic participation.

The final priority is policy credibility. Investors, firms, and households respond less to announcements than to consistency. Reform must therefore be sequenced and credible: protect the vulnerable while broadening the tax base; reduce energy losses while aligning tariffs with costs; disclose liabilities before managing debt risks; and remove distortions before expecting investment.

External financing and programme discipline can create breathing space, but domestic ownership must convert it into reform. Pakistan has used many stabilisation episodes to survive immediate crises. This one must be used to change the structures that keep producing them.

Pakistan’s economic moment should therefore be judged not by the release of the next tranche, but by progress on a fair tax system, an efficient energy sector, a credible debt path, disciplined public enterprises, competitive exports, and targeted social protection. Stability is necessary, but it is only the beginning. Real reform begins when crisis management ends.

Copyright Business Recorder, 2026