Pakistan is coming into big money – but will it last?

Pakistan seems to be coming into big money, an unusual position to be in, considering its underwhelming economic performance for most of this decade. Major international lenders are ready to bet big on Pakistan going forward with their readiness to ink major agreements to finance reforms and growth. But is Pakistan ready to manage this unusual international vote of confidence in its ability to finally carve out and stabilize a sustainable development trajectory premised solely on the economic revival of the last couple of years? Perhaps.

Otherwise tough-talking lifeline lender International Monetary Fund (IMF) is exhibiting unusual tolerance for Pakistan’s suggestions to modify implementation terms on economic management against its $7 billion loan for macroeconomic reforms after performing well on key conditions so far.

Traditionally, the IMF has struggled with ensuring Islamabad enforces loan terms due to slippages in either taxing elites or meeting revenue targets. For once, Pakistan has managed to ensnare the most elusive of its elite classes – the powerful landed aristocracy – into the tax net with agriculture tax enacted through first-time laws in all its four provinces. The country has been struggling to do this for six decades without success, until now. Successful implementation should swell tax collection by up to over 15 percent.

Tough-talking lifeline lender IMF is exhibiting unusual tolerance for Pakistan’s suggestions to modify implementation terms on economic management against its $7 billion loan.

Adnan Rehmat

Pakistan seems to be meeting other terms of the loan – which helped Islamabad escape near default in 2023 – such as record income tax collection, digitalization of the revenue authority, reform of the legal framework governing arbitration of commercial disputes and privatization. Challenges include bringing the large but slippery retail sector into the digital payment regime to improve compliance and collection. An IMF team was in Pakistan in February to review progress to assist.  

Then there’s the World Bank (WB), which has unexpectedly – and unsolicitedly – offered a $20 billion, 10-year socio-economic development plan under a new ‘Country Partnership Framework’ to Pakistan. This confidence is highly unusual and signals a key shift in international perception of the state’s intent and performance on governance reforms and their sustainability. WB has nearly doubled Pakistan’s projected economic growth for 2025 at 3 percent. 

The International Finance Commission (IFC) chief, in Pakistan in February, offered $2 billion a year in infrastructure support for the next several years to beef up an expanding economy. This is assistance Pakistan did not solicit and, if materializes into a formal agreement, is sure to boost key credit and business rankings and invite even more money.  

Clearly confidence in Pakistan’s economic recovery and takeoff – after its disastrous negative growth rate just three years ago – is reviving the interest of big money to invest in development. The confidence itself is not misplaced. Inflation has dropped to historic lows of 4 percent – from a record high of over 40 percent; FDI has doubled since last year and growing; foreign remittances are at a record high (over $3 billion a month); exports are finally on the upswing – led by a runaway IT and tech sector spurt that is rapidly expanding digitalization of governance and economy.

While nothing can be taken for granted, Pakistan must be fully committed to matching this newfound confidence of big money in its socio-economic development trajectory. To bridge the gap between international donor and investor confidence with sustainable reforms, Pakistan needs to deepen its macroeconomic performance. This can be facilitated through matching prioritization of a mid-term microeconomic consolidation and socioeconomic development plan.

The recently announced five-year ‘Uraan Pakistan Plan’ encompassing priorities and implementation strategies for the period 2025-30 may just be the blueprint to anchor this. Unveiled in December 2024, the plan aims for economic transformation to revitalize national economy including achieving 6 percent GDP growth by 2028; public-private partnerships and optimized public finances; sustainable development by protecting natural resources, ensuring water and food security and addressing climate change; energy security through green solutions; ensuring social justice by equity, empowerment and affirmative action; sustaining the digital transformation process by enhancing operational efficiency and innovation; and beefing up export competitiveness.

While the reforms and development process has sustained itself over the short term and the medium-term policy framework sets out a forward course, the litmus test for Pakistan will always be tackling its perennial Achilles heel – political instability. While the country seems to have recovered from the political wobble accruing from the results of the controversial elections in 2024, the underlying lack of political consensus on sustainable political, legal and social reforms are a must to ensure a steady course for the economic revival to become sustainable. 

– 

Adnan Rehmat is a Pakistan-based journalist, researcher and analyst with interests in politics, media, development and science. X: @adnanrehmat1