Every Pakistani household knows how this story begins. Reserves thin out, the rupee slides, prices climb, and a mission arrives in Islamabad with a list of conditions.
Pakistan has turned to the IMF more than 20 times since 1958, and each visit leaves the same aftertaste: austerity, resentment and a promise that this time would be the last.
The same gap keeps reopening. The state spends more than it collects, the country imports more than it exports, and borrowing fills the difference. Tax revenue hovers around a tenth of GDP. Power-sector losses pile up as circular debt. Loss-making state enterprises draw on the budget year after year. In good seasons, remittances, friendly deposits or cheap global money hide the gap. In bad seasons, the reserves run out. By early 2023, cover had shrunk to a few weeks of imports and inflation was racing toward 38 per cent. The $3 billion standby arrangement became the bridge that kept a default at bay.
Imagine Pakistan had never gone to the Fund. The rupee would have fallen disorderly. Letters of credit for fuel, fertiliser, medicines and industrial inputs would have gone unopened, and factories would have shut their gates. Friendly governments rolled over their deposits with an IMF anchor in place; without it, their patience would likely have worn thin.
Sri Lanka gave the region a preview in 2022: default, fuel queues and hospitals short of medicine. The poor would have paid first and most, through higher prices for flour and petrol. Seen this way, the IMF has worked as an expensive insurance policy, one Pakistan bought because it could not supply the discipline itself.
We are now deep into the latest chapter. The staff-level agreement reached after the fourth review could unlock around $1.21 billion across the $7 billion Extended Fund Facility and the $1.4 billion Resilience and Sustainability Facility, subject to Executive Board approval. The Fund describes the programme as broadly on track, estimates growth at 3.6 per cent and still rates risks as high. Yet official reports suggest only a few of more than three dozen targets for January to June 2026 were achieved. Stability has arrived, and the reforms behind it remain unfinished.
What if the next programme never comes? Here the honest answer matters. Leaving by announcement would end badly. A country that declares independence from the Fund while still running deficits will watch lenders, rating agencies and friendly depositors reach for the exit together. The only credible way to stay away is to earn it by building the buffers a programme exists to provide.
The challenges are formidable. Pakistan faces heavy external repayments every year, and rolling them over depends on confidence. The tax base remains narrow, with retail, real estate and agriculture contributing far less than their size warrants. Energy costs keep industry uncompetitive, and exporters are only now seeing a protective tariff wall come down. Provinces have large budgets and modest revenue effort. Every reform also meets an entrenched beneficiary with a loud voice. Without the Fund’s outside discipline, the question becomes who will say no at home.
There is real cause for hope. The IMF has highlighted improvements in Pakistan’s external position, and combined health and education spending has risen from 2.2 per cent of GDP in FY24 to 2.5 per cent in FY26. The reform toolkit is already on the shelf, including risk-based audits and digital invoicing, a new tariff policy, privatisation and a sovereign wealth fund. Crises have been Pakistan’s most effective reformers. The coming years offer a rarer chance to reform while the lights are still on.
First, we need to write our own exit test. The government should publish measurable graduation criteria: a primary surplus held for several years, reserves covering at least three months of imports, a current account deficit within one per cent of GDP and tax collection above 13 per cent of GDP. Meeting them would justify walking away, and missing them would justify staying.
Second, widen the tax net. Bring retailers, real estate, and agricultural income into the system; cut exemptions; and use digital invoicing and third-party data to find those outside it. Federal and provincial governments must pursue this together.
Third, fix power. Renegotiate capacity payments, move to cost-reflective tariffs with targeted support for poor households through BISP and cut distribution losses. Circular debt will keep returning until this is done.
Fourth, make exports the growth engine. Keep tariff liberalisation on schedule, give exporters affordable energy and predictable rules, and let the rupee find its level. Fifth, restructure or sell state enterprises. Ring-fence the budget from their losses so that no ministry can quietly bleed the exchequer.
Sixth, rebuild market access on our own terms. Manage debt prudently, lengthen maturities, and return to international bond markets from a position of strength. When the current programme ends, Pakistan could consider a non-financing arrangement such as a Policy Coordination Instrument, which keeps a policy anchor and a signal of credibility without drawing a rupee of Fund money. Leaving the lending window need not mean going dark.
Life beyond the IMF exists, and many countries live it. Pakistan can join them, but only if this programme’s end becomes the start of a home-grown one, with targets we set, publish and keep. The next mission to Islamabad should find a government that has already done its homework. Whether the next mission is the last depends on what we do in the meantime.
The writer is the head of the Governance and Reforms Unit at the Sustainable Development Policy Institute (SDPI), Islamabad.
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