ederal Finance Minister Muhammad Aurangzeb recently claimed that Pakistan was well placed for the International Monetary Fund programme. The first review of its $7 billion 37-month bailout package is currently under way [March 4-14]. The minister highlighted macroeconomic stability as the key achievement of his government. Muhammad Aurangzeb has expressed confidence that the country will meet the targets set by the IMF. This, he said, could unlock continued funding to support economic recovery.

Prime Minister Shahbaz Sharif, too, has claimed significant progress in stabilising the economy, crediting structural reforms and strategic alliances with international financial institutions. Deputy Prime Minister-cum-Foreign Minister Muhammad Ishaq Dar has set the regime ambitious goals, projecting Pakistan’s inclusion in the G20 by 2030, emphasising resilience and economic reforms.

The gross domestic product grew by 2.5 percent in fiscal year 2024, recovering from a decline of 0.2 percent in FY2023. The stock exchange saw a remarkable 71 percent increase in returns and the current account surplus reached its highest level in 20 years.

The inflationary pressure has eased significantly, with the consumer price index (CPI) dropping to 1.5 percent in February 2025, down from 2.4 percent in January, marking a substantial decline from 23.1 percent in the same month last year, according to official statistics. Despite this decline, high energy costs remain a concern. There has been a 63.6 percent raise in electricity and gas tariffs, which continue to impact household expenses and industrial costs.

The World Bank’s latest Pakistan Development Update highlights pressing economic challenges, particularly in the power sector where circular debt has surged. Inefficiencies in state-owned distribution companies are adding to the financial burden. Transmission and distribution losses remain high.

Despite increased generation capacity, revenue collection remains inadequate. The government is implementing privatisation strategies and policy measures to enhance operational efficiency and financial sustainability. Power sector reforms, including reduction in transmission losses and improved billing mechanisms, are essential for long-term stability.

The fiscal deficit narrowed to 6.8 percent of GDP and tax revenues rose by 26 percent. The government has focused on broadening the tax base and improving collection mechanisms. Petroleum levy and direct taxes have contributed significantly to revenue growth. However, the tax-to-GDP ratio remains lower than the regional average, necessitating further fiscal reforms. The goal is to increase tax revenue to 13.5 percent of GDP over the next four years. This should have been 18 percent in view of population growth and other peculiar fiscal challenges, especially the monstrous debt burden.

Foreign exchange reserves increased to $10.6 billion, equivalent of 1.9 months of imports. This improvement reflects the impact of fiscal consolidation efforts, reduced trade deficits and inflows from international financial institutions. Despite these gains, external vulnerabilities persist, with high debt servicing costs and reliance on external financing. The government is seeking foreign direct investment to bolster economic resilience.

Monetary policy adjustments have played a key role in stabilising inflation, which, despite easing from the previous year, remains high. The State Bank of Pakistan has maintained a cautious stance, implementing measures to control inflation while supporting economic growth. The exchange rate has stabilised, helping to curb imported inflation and improve investor confidence. However, inflationary pressures continue due to high energy prices and supply chain disruptions.

Pakistan’s external trade position has shown signs of improvement, with exports growing by 11.6 percent in FY2024, primarily driven by the agriculture sector. Ban on Indian rice exports had created an opportunity for Pakistani rice exporters, leading to record-high food export earnings of $7.1 billion. However, import growth has remained modest at 0.9 percent, reflecting subdued domestic demand and tighter import regulations. The balance of payments has improved, contributing to overall economic stability.

Pakistan’s economic outlook remains cautiously optimistic. Growth is projected to reach 2.8 percent in FY 2025. Implementation of structural reforms, fiscal discipline and policy continuity will be essential to achieving long-term economic stability.

The industrial sector faced challenges, contracting by 1.2 percent due to declining output in utilities and manufacturing. However, the agriculture sector experienced its highest growth in 19 years, expanding by 6.4 percent, driven by increased wheat, rice and cotton production. The services sector also grew by 2.2 percent, supported by retail trade and improved consumer spending. The government aims to enhance industrial productivity by incentivising investments and reducing regulatory bottlenecks.

Structural reforms in state-owned enterprises (SOEs) have been identified as a critical area for economic progress. Inefficiencies in SOEs have led to fiscal imbalances, prompting the government to pursue privatisation and improvements in governance. Efforts to restructure these entities focus on reducing operational losses and enhancing service delivery. The introduction of performance-based management and accountability mechanisms aims to improve financial sustainability.

The government has also emphasized social welfare programmes to mitigate the impact of economic challenges on vulnerable populations. The Benazir Income Support Programme allocations have been increased, but inflation-adjusted benefits remain insufficient. The rising cost of living has strained household budgets, necessitating further policy interventions to support lower-income groups.

Investment in human capital is essential for sustainable economic growth. The education sector faces significant challenges, with one-third of children out of school. Increased public spending on education and skills development is necessary to enhance workforce productivity. Health sector improvements are also critical, as poor healthcare access continues to impact economic participation and productivity.

Pakistan’s digital economy presents a major opportunity for economic transformation. The information and communication technology (ICT) sector has shown resilience, with increased exports contributing to economic growth. The government is prioritising digital infrastructure investments to support innovation and entrepreneurship. Strengthening cybersecurity and regulatory frameworks will be significant to fostering a competitive digital economy.

Energy sector reforms remain a priority, as rising costs and inefficiencies continue to burden households as well as businesses. The power sector’s circular debt has reached unsustainable levels, necessitating urgent reforms. The government is implementing measures to improve revenue collection, enhance grid efficiency and promote renewable energy sources. Strengthening governance in energy distribution companies is essential to reducing financial losses and ensuring reliable power supply.

Agricultural productivity enhancement is the key to ensuring food security and economic stability. Climate change and water scarcity pose significant risks to agricultural output. Investment in modern farming techniques, irrigation infrastructure and climate-resilient crops is critical to sustaining agricultural growth. The government is also working on policies to support small-scale farmers and improve market access for agricultural products.

The financial sector has a crucial role in economic stabilisation. The banking industry remains robust, with improved capital adequacy ratios and liquidity. However, credit to the private sector remains low. Banks are heavily exposed to government borrowing. Strengthening financial inclusion, supporting small and medium enterprises (SMEs) and enhancing digital banking services are essential for a more dynamic financial system.

Pakistan’s economic outlook remains cautiously optimistic, with growth projected to reach 2.8 percent in FY2025. Implementation of structural reforms, fiscal discipline and policy continuity will be essential in achieving long-term economic stability. The government’s commitment to debt reduction, revenue generation and investment-friendly policies will shape the economic trajectory in the coming years.

Looking ahead, government officials remain hopeful about achieving economic stability. The prime minister has emphasised the importance of ongoing structural reforms, strengthening partnerships with international financial institutions and attracting foreign investment. The commitment to policy consistency, transparency and regulatory efficiency will be the key to ensuring sustainable growth.

The government aims to address macroeconomic challenges through targeted interventions, focusing on infrastructure development, energy reforms and financial sector improvements. Building economic resilience demands coordinated efforts across all sectors, with a firm focus on governance, efficiency and strategic investments. The continued commitment to reforms positions Pakistan to become a stronger and more stable economy, ensuring a prosperous future for its citizens.

Dr Ikramul Haq, writer and advocate of the Supreme Court, is an adjunct teacher at Lahore University of Management Sciences.

Abdul Rauf Shakoori is a corporate lawyer based in the USA