PAKISTAN’S Debt history began more conspicuous and noticeable after the impact of unprecedented high oil prices in the mid 70s, when the government started borrowing from World Bank, IMF and other International agencies to cope up with the impact of high oil prices, which were affecting the economy.
Ever since then, people have suffered from a large external debt which kept on piling up, due to reckless borrowing. The response to this debt crisis has been to continuously obtain bailout loans from the International Monetary Fund (IMF). For 32 of the last 44 years, Pakistan has received loans from the World Bank, IMF, Asian Development Bank and Arab countries. Pakistan today continues to have a large external debt, decline in its currency value, entrenched inequality of income and the country has failed to meet most of the Millennium Development Goals.
Between 1990 and 2016, external government debt payments averaged 16% of government revenue, more than public spending on health care. However, despite being impoverished and heavily indebted, the country was excluded from the IMF and World Bank HIPC debt relief scheme for arbitrary reasons, because as a large country debt cancellation would cost lenders more than in smaller countries.
The bailout loans have resulted in the debt being passed down generations, giving the IMF an enormous power over Pakistan’s development. The economic conditions, the institution has placed upon the country, have strangulated the growth due to higher in-put cost in manufacturing, eroding purchasing power of the people due to persistent high inflation and higher taxation. Though lending and grants by western countries have been a means to prop-up various governments (both Civil and military), financial mismanagement, questionable priorities and defective policies have multiplied the problem, rather than solving it and the proof is the present malaise we are in. Through the 1980s and 1990s Pakistan increased taxes on manufacturing and utilities to make exports expensive and taxed salaried class to curtail their buying power at the behest of the IMF and World Bank, whilst reducing taxes on imports thus making imports cheaper and exports expensive. As a percentage of tax revenue, sales taxes in Pakistan increased from 7% in 1980 to almost 30% by 2000. Overall taxes increased by 7% for the poorest households, whilst falling by 15% for the richest. Yet in 2010, the IMF once again pushed the Pakistan government to increase taxes which resulted in more people falling into poverty and those earning less than two dollars a day threshold of the UN.
Pakistan’s debt burden increased again from 2008 because of the disastrous floods in 2010, and the impacts of the global financial crisis, such as the rise in the cost of imported oil. The government’s external debt reached $59 billion by 2016. In 2017, Pakistan has used-up 20% of its foreign currency reserves to try to defend the value of the rupee. Depreciation of foreign currency reserves not only rapidly increased the size of external debt payments but it also resulted in the value of Pakistani Rupee which lost its value massively and the decline continues, unchecked. Even the Afghan currency, a country devastated by more than 20 years of war, is far ahead of Pakistani Rupee and so are Thai Baht and Bangladesh Taka and Indian Rupee.
The Asian Development Bank (ADB) projects a growth rate of 2.7% in FY2025 and 3.0% in FY2026, indicating a continued recovery from previous years. Average inflation is expected to decline, falling to 6.0% in FY2025 and 5.8% in FY2026, partly due to stable commodity prices and monetary easing. Encouragingly, the economic outlook has brightened because of the sustained implementation of structural reforms in crucial sectors like taxation and energy, which have contributed to greater macroeconomic stability. A rebound in private sector investment, supported by a stable foreign exchange market, is another key driver. Strong remittance inflows are also boosting private consumption, while recent monetary easing measures are expected to stimulate activity in both the industrial and services sectors. The ADB emphasizes, however, that sustained policy reforms remain essential to maintain this growth trajectory and strengthen Pakistan’s economic resilience.
Recent reports from the OECD highlight challenges and opportunities for Pakistan’s economy, stressing structural reforms to boost growth, reduce poverty, and improve macroeconomic stability with support from the IMF’s Extended Fund Facility. The OECD focuses on promoting competition, enhancing tax transparency, and ensuring responsible business practices to foster long-term competitiveness. It identifies low investment and slow innovation diffusion as major challenges, calling for greater investment in the digital and knowledge-based economy. The organization has also reviewed Pakistan’s tax transparency standards and supported efforts to strengthen market competition, noting that many sectors remain restricted by protective policies.
Pakistan’s economy has shown signs of recovery, supported by fiscal and external sector stability and financial inflows, including the first tranche of the IMF’s EFF program. However, recent events, such as the COVID-19 pandemic and the 2022 floods, have contributed to a rise in poverty levels. The global economic outlook has shifted with softening global growth prospects, lingering inflationary pressures and high policy uncertainty, reinforcing the need for structural reforms in countries like Pakistan. The country is not yet out of dire straits and all out efforts are needed to come out of this labyrinth. The odds are difficult but not surmountable. With dedication and proper focused approach and, above all, controlling corruption, desired results can be achieved.
—The writer is Former Civil Servant and Consultant (ILO) & International Organisation for Migration and author of seven books.
