Mahnur Asim

Every few years, Pakistan finds itself signing the same kind of deal with the same institutions. The demands never really change: cut subsidies, raise taxes and reduce government spending. Loans are taken frequently, and ordinary people feel the impact first. Electricity bills rise, fuel becomes too expensive, and the rupee loses its value. But is the IMF truly responsible for Pakistan's economic collapse? Or has blaming become an easy excuse to avoid fixing real issues?

IMF and Pakistan

The IMF was created in 1944 with a simple purpose: when a country runs out of foreign exchange and cannot pay its international bills, the IMF steps in with emergency loans to help stabilise the economy. Pakistan joined the IMF in 1950. Its first loan arrangement was signed in 1958, a $25 million emergency loan that Pakistan never even used. For the next two decades, things went reasonably well. Between 1965 and 1977, Pakistan signed six IMF deals, used most of the money and met the required conditions. But by the late 1990s and early 2000s, Pakistan faced political instability and military rule. The IMF changed its approach. It no longer just offered emergency cash. It began demanding big changes to how countries ran their entire economies: cut subsidies, sell government-owned companies and increase taxes. As a result, Pakistan often missed its targets and grew more dependent on the next loan just to pay back the previous one.

Also read: Debt, Dependency & Development: How IMF Conditionalities Reshape Pakistan's Economic Policy and Who Pays the Price

Since 1958, Pakistan has received about $31.1 billion from the IMF. It has repaid around $21.6 billion and paid over $3.5 billion in interest. The most recent deal was a $7 billion loan signed in September 2024, which is currently active. Even though the IMF is the most talked-about lender, it accounts for only about 7% of Pakistan's total external debt. The World Bank and Asian Development Bank together hold about 33%, mostly for energy and infrastructure projects. China holds about 21%, mainly through CPEC-related power and road projects. Saudi Arabia and the UAE contribute around 7% through oil deals and central bank deposits. The rest comes from commercial bonds and other bilateral lenders.

Today, about 51% of Pakistan's entire federal budget goes just toward paying back debt. That means more than half of every rupee the government collects is spent before a single road, school or hospital is built. This is no longer a lending relationship. It is a cycle of dependency that Pakistan has failed to break. The IMF does not govern countries nor redirect development money toward administrative expenses. Pakistan's real issue is how it spends its budget. For every 100 rupees the government spends, 51% go toward debt payments, 16% toward defence, 10% toward salaries and pensions, only 8 %  toward development such as schools, hospitals and industry and about 3% toward social protection programmes like BISP. In simple terms, only eight rupees out of every hundred go toward building the country's future. The rest goes toward past obligations and running the government.

Also read: Labour Rights in Pakistan’s Informal Economy: Issues of Rights, Security and Protection

Pakistan runs a fiscal deficit of about 3-4% of GDP. That means it consistently spends much more than it earns. Yet GDP growth in recent years has barely crossed 2%. In real terms, the average Pakistani is not getting richer; they are standing still while debt piles up above them. Only 7.3 million out of 230 million are registered taxpayers. Pakistan's tax-to-GDP ratio is 10.3%, one of the lowest in the world for a country of its size. Agriculture accounts for about 24% of GDP but is constitutionally exempt from federal income tax. Real estate where much of the elite's wealth is invested is taxed at rates far below market value. As a result, the tax burden falls almost entirely on salaried workers and formal businesses, the people least able to avoid it.

Conclusion

The IMF isn't the main reason behind Pakistan's economic difficulties. The real issues are structural, rooted in domestic policies, and have developed over many years. The tax system favours landlords and real estate investors, while placing the biggest burden on salaried workers. Despite agriculture contributing about 24% to the national GDP, it remains exempt from federal income tax. Additionally, much of the real estate wealth is outside the formal tax system. These conditions weren't mandated by the IMF; they are maintained by governments because those who benefit from them also hold political power. Pakistan doesn't need another loan; it needs a political solution. Without fixing these internal problems, the cycle of crises will persist: new government, same issues, new loans, and the cycle continues. External lenders can't replace the domestic political will Pakistan must develop.

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the official stance of The Himalayan Research Institute Pakistan (THRIP)

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Mahnur is a research intern at the Himalayan Research Institute, and her research focuses on political economy and international relations.