News Desk
Pakistan has once again returned to the International Monetary Fund, a familiar destination for its economic managers in a country that has secured 23 bailouts in 75 years, making it one of the IMF’s most frequent borrowers. An IMF mission led by Iva Petrova opened technical‑level talks with the State Bank of Pakistan in Karachi on Wednesday, beginning the third review of the $7bn Extended Fund Facility and the second review of the $1.1bn Resilience and Sustainability Facility, before wider policy discussions with federal and provincial authorities next week.
Pakistan’s fiscal crisis is a macroeconomic problem that shapes how Pakistanis eat, commute, study, and seek medical care. The state’s dependence on external lenders, chronic revenue shortfalls, and relentless price hikes have turned basic rights into daily anxieties for a large part of the population. While recent IMF-supported programs have momentarily stabilised the balance of payments and improved headline fiscal indicators, they have simultaneously deepened the pressures on ordinary households through austerity, regressive taxation, and the withdrawal of subsidies.
At the core of Pakistan’s economic crisis lies a structurally weak fiscal base. The country’s tax‑to‑GDP ratio remains among the lowest in South Asia, forcing successive governments to rely heavily on both external and domestic borrowing to fund current expenditure and debt servicing rather than long‑term development.
A World Bank assessment places Pakistan at the bottom of the region’s revenue‑to‑GDP rankings, with Pakistan consistently near the lowest position. With tax collection hovering around 10 per cent of GDP—well below the regional average—the Asian Development Bank similarly notes that Pakistan’s narrow tax net and vast informal economy continue to suppress revenues and undermine fiscal stability.
The IMF notes that while the federal government has recently delivered a primary surplus under its Extended Fund Facility, this has largely been achieved by compressing spending and raising indirect taxes, not by broadening the direct tax net or addressing elite exemptions. As a result, the fiscal adjustment burden is pushed downward onto consumers through higher sales taxes, energy tariffs, and inflation, with limited compensation through social protection.
The World Bank estimates that Pakistan’s poverty rate climbed to around 40.5 percent in 2024, meaning millions have slipped below the poverty line as growth stalled and prices spiked. In some regions such as Balochistan, poverty is estimated at roughly 70 percent, highlighting how a national fiscal crunch amplifies long-standing regional disparities. With growth projected to remain below potential and inflation expected to stay elevated, international financial institutions themselves warn that living standards will not recover meaningfully without deeper structural reforms and sustained, inclusive growth. For ordinary citizens, these warnings translate into permanent belt-tightening and shrinking life chances.
Inflation is the most direct and painful expression of the crisis for citizens. In 2023 Pakistan recorded inflation close to 38 percent, the highest in Asia at the time, driven by currency depreciation, fuel price hikes, and tax-driven increases in utilities and basic goods. Under successive IMF programmes, the government removed or reduced subsidies on fuel, electricity, and gas, while shifting to market-based pricing, resulting in electricity tariffs jumping from around 10 rupees to as high as 65 rupees per unit over a three-year period and gas prices rising by over 800 percent since 2019 as admitted by Pakistan’s own finance minister. These measures satisfy program conditionalities and improve fiscal arithmetic, but for low-income households they mean rationed electricity, reduced cooking gas usage, and cuts in food quality as more income is diverted to energy bills.
Food and essential commodities have followed the same trajectory. Higher general sales tax rates, currency weakness, and the pass-through of global prices have pushed the cost of basic staples far beyond the reach of many families. Reports document how even items such as packed milk now sell at over 400 rupees per litre, a striking figure in a country where agriculture and dairy are major sectors of the economy. For daily wage earners and informal workers whose nominal incomes do not adjust with inflation, this erosion of purchasing power translates into under-nutrition, reduced dietary diversity, and increased child vulnerability to health shocks.
The fiscal squeeze also hits access to health, education, and social protection. IMF-mandated austerity typically involves cuts or freezes in public spending, including on welfare programmes, education and healthcare, in order to meet deficit targets. Human Rights Watch has warned that measures such as higher regressive taxes, removal of subsidies, and underfunded safety nets have already pushed millions into conditions that breach their rights to food, housing, and an adequate standard of living. While Pakistan’s social protection programmes, like cash transfers, exist, international assessments repeatedly underscore their limited coverage and the gap between rising needs and actual budgetary allocations. In practice, this means fewer medicines in public hospitals, overcrowded classrooms, and families forced to withdraw children from school to cope with household costs.
Employment and livelihoods are being eroded in parallel. International analyses of Pakistan’s engagement with the IMF show that austerity and structural reforms have frequently led to job losses in public enterprises, wage compression, and more precarious labour market conditions. When combined with high inflation and slowed growth, this environment produces a squeeze where both formal and informal sector workers see real incomes fall even if they remain employed. Unemployment and underemployment rise, particularly among youth, feeding frustration and out-migration pressures, while the fiscal state offers little in terms of active labour market programmes or meaningful unemployment protection.
The crisis is also reshaping the urban-rural and class divides in access to basic services. Official social-indicator surveys show long-standing disparities in access to safe water, sanitation, and health facilities between urban centres and rural districts, especially in poorer provinces. As fiscal space narrows, investments in water supply, sanitation, and local infrastructure are often postponed, leaving marginalised communities to cope with deteriorating public services and higher private costs for tanker water, transport, or private clinics. In effect, better-off households can partially insulate themselves through private schooling, generators, and healthcare, while poorer citizens are locked into failing public systems that are further weakened by austerity.
As long as the fiscal crisis is managed primarily through higher indirect taxes, rapid price adjustments, and compressed development spending, the result will be a stable macro framework for creditors and an unstable, exhausting existence for citizens. The real test of any future fiscal reform is whether it begins to reverse this pattern and restores basic economic security as a right, not a privilege, in Pakistan.
