THE recent approval of nearly $1.3 billion along with additional support under the IMF’s Resilience and Sustainability Facility (RSF) has temporarily strengthened confidence in Pakistan’s fragile economy.
The development has provided short-term financial breathing space despite growing tensions in the Middle East, particularly the sea skirmishes between America and Iran amid hopes of an intact ceasefire. However, Pakistan’s economic gains remain highly vulnerable to global volatility, rising geopolitical tensions and the persistent threat of instability on both its eastern and western borders.
It is an admitted fact that receiving IMF loans and providing real relief to the masses are two entirely different matters. IMF assistance often comes with stringent conditionalities that increase inflationary pressure through higher taxation, withdrawal of subsidies and increases in petroleum levies and utility tariffs. In Pakistan, the benefits of such financial arrangements are often enjoyed by the elite class, while the burden is transferred to the middle and lower-income segments of society. Past and present IMF programmes have rarely translated into meaningful relief for the marginalized population. Pakistan, being a heavily populated country, has repeatedly withdrawn subsidies under IMF conditions. A pertinent example is the petroleum levy, which reportedly reaches nearly Rs100 per litre, generating approximately Rs12 trillion in revenue for the government, according to media reports. Yet the common citizen continues to struggle with rising prices of food, medicine, transport and electricity.
The phrase “changing the system” is frequently heard in political and public discourse. In reality, this refers to deep structural reforms in Pakistan’s political, economic, judicial and administrative systems. The prevailing perception is that the rule of law is applied differently to the powerful elite and ordinary citizens. A small political and business class continues to enjoy tax exemptions, subsidies, influence and access to state resources, while the salaried and lower-income classes bear the brunt of inflation and indirect taxation.
Pakistan’s economy depends excessively on indirect taxes, imports, external borrowing and IMF programmes instead of productivity, exports, documentation of the economy and direct taxation of wealth. Pakistan’s stabilization remains extremely fragile because the economy is heavily dependent on imports and external financing. Any prolonged conflict in the Middle East could sharply increase oil prices, widen Pakistan’s import bill and weaken the rupee due to higher dollar demand for petroleum imports. As Pakistan imports most of its petroleum products from Gulf countries, a sustained conflict involving Iran and America could severely damage inflation-control efforts and external account stability.
The upcoming Budget 2026–27 may, therefore, become increasingly difficult for policymakers. The government may be compelled to impose additional taxes and increase petroleum levies to satisfy IMF conditions. Higher inflation may force the State Bank to maintain or further increase interest rates, creating additional hardships for the business community and industrial sector. Stock markets, investor confidence and development spending may also suffer, while debt servicing and defence expenditures continue to rise.
Pakistan’s security environment: Domestically, political instability and dependence on loans from the IMF, China and Saudi Arabia have only provided short-term stabilization. Any sudden external shock can rapidly weaken Pakistan’s financial position. High inflation, unemployment, poverty and low per capita income continue to generate public resentment against the government. The most pressing question, therefore, is how meaningful relief can be provided to the business community, salaried class and marginalized segments of society in the coming budget. Labourers, clerks, Naib Qasids, Grade 1–16 employees and small farmers are anxiously waiting for practical relief measures rather than symbolic announcements.
In the short term, the government must reduce unnecessary expenditures, broaden the tax net and provide targeted subsidies for low-income groups instead of blanket subsidies that benefit the wealthy. Direct taxation on wealth, agricultural income of large landowners and untaxed sectors should be strengthened. Simultaneously, the government must facilitate small and medium enterprises through easier credit access and lower energy costs. In the long term, Pakistan’s survival depends upon structural reforms. Revival of industries is only possible if energy prices become affordable. Unfortunately, amid looming regional conflict, a reduction in petrol, diesel and gas prices appears unlikely. Foreign investment and industrial relocation also remain difficult due to law and order concerns in Khyber Pakhtunkhwa and Balochistan. Similarly, strategic infrastructure projects such as the Karachi-Peshawar double railway line could have significantly reduced transport and energy costs, but progress has remained disappointingly slow. Another major policy failure is unchecked population growth. Overpopulation contributes directly to poor governance, unemployment, traffic congestion, illiteracy and pressure on health and education systems. Despite more than seven decades of independence, no comprehensive and effective population management strategy has been implemented. Pakistan’s import-oriented economy continues to erode foreign exchange reserves. A substantial portion of imports consists not only of petroleum products but also luxury items such as expensive vehicles, perfumes, imported cosmetics and pet food. Reducing non-essential imports and encouraging local manufacturing are essential steps toward narrowing the trade deficit.
The need of the hour is to increase exports through diversification and value addition. Pakistan has immense potential in information technology exports, freelancing and AI-driven services, although these sectors will require time, policy continuity and investment to flourish. Unfortunately, higher energy prices and expensive raw materials continue to make Pakistani exports less competitive than regional economies.
There is also an urgent need for better coordination between the Commerce Ministry and other economic institutions to identify new export markets, diversify products and establish long-term trade partnerships, particularly in the Middle East and Africa. Pakistan has failed to fully capitalize on the export of non-conventional and value-added goods despite possessing enormous potential. Ultimately, Pakistan cannot rely indefinitely on loans and temporary financial packages. Sustainable economic strength can only emerge through institutional reforms, export-led growth, rule of law, political stability, affordable energy, population control and equal application of justice. Without addressing these structural weaknesses, every external shock — whether geopolitical conflict, oil price volatility or IMF conditionalities — will continue to expose the fragility of Pakistan’s economy and deepen the hardships faced by its ordinary citizens.
—The writer is Media Adviser, Federal Tax Ombudsman, Pakistan.
