Pakistan’s economy is in a considerably better position than it was a few years ago. The country has moved away from acute external pressure and macroeconomic instability, and Prime Minister Shehbaz Sharif and his economic team deserve recognition for maintaining fiscal discipline, rebuilding reserves and keeping the economy on a path of stabilization. On September 25, SBP reserves stood at $21.44 billion and total liquid reserves at $26.77 billion. Provisional GDP growth for FY2025-26 was 3.70 percent, while the fiscal position improved significantly. (SBP; Pakistan Economic Survey 2025-26; Finance Division). This progress matters. But stability is not the destination. It provides the breathing space to address the structural weaknesses that have repeatedly pushed Pakistan back into external and fiscal crises. The next phase must turn stability into investment, productivity, exports, jobs and lasting growth.
Stabilization Is Not Transformation
The ongoing IMF review illustrates both the progress made and the challenges that remain. The review covers the fourth review of the $7 billion Extended Fund Facility and the third review of the Resilience and Sustainability Facility, alongside the Article IV consultation. The programme continues to emphasize stronger public finances, competitiveness, productivity, state-owned enterprise reform, social protection and a viable energy sector. (IMF; Finance Division)
The importance of the review, however, goes beyond the next disbursement. Pakistan has already demonstrated that it can restore macroeconomic discipline under pressure. The harder task now is to ensure that this discipline produces a more productive economy rather than another cycle of stabilization followed by renewed external pressure.
Energy Reform Must Reduce Business Costs
The power sector remains one of the most stubborn structural problems. Circular debt reached Rs.1.675 trillion at the end of June 2026, exceeding the programme target. The government has budgeted Rs.830 billion for power subsidies in FY2026-27, while the IMF is seeking a shift from broad electricity cross-subsidies towards more targeted support for vulnerable households.
The proposed shift would target support more directly at households that need it. But energy reform must be judged by more than the size of circular debt. Its ultimate test is whether factories and businesses can obtain reliable electricity at competitive and predictable prices. That requires sustained reductions in theft and technical losses, better performance by distribution companies, stronger transmission, a more efficient generation mix and disciplined subsidies. Capacity-related costs also need continued review within the overall power-sector reform framework. Avoidable taxes and charges that unnecessarily raise industrial electricity costs should be examined. For productive sectors, the objective should be simple: lower and more predictable energy costs. Cheaper and reliable electricity can contribute more to export competitiveness than another short-term incentive package.
Tax Reform Must Broaden the Base
Tax reform faces a similar test. The FBR collected about Rs.3.08 trillion during the first quarter of FY2026-27, exceeding its quarterly target by around Rs.27 billion. The annual collection target remains Rs.15.264 trillion. (FBR; Finance Division) This is encouraging, but collection performance cannot be judged only against annual targets. Pakistan still has a narrow tax base, while debt-servicing costs absorb a very large share of federal expenditure. Interest payments are budgeted at roughly 42 percent of federal spending in FY2026-27. The broader tax-to-GDP ratio also remains below the level the authorities aim to achieve over time. (Finance Division; IMF)
Debt reduction is a long-term exercise. It requires sustained primary surpluses and stronger revenue mobilization year after year. The answer cannot be repeated increases in the burden on the same documented taxpayers. The next stage should use data from banks, utilities, property records and other sources to identify economic activity outside the tax net. Retailers, wholesalers, real estate and agricultural income need to be brought into a fairer tax framework. At the same time, compliant businesses need predictable rates, timely refunds, prompt duty drawbacks and fair enforcement. Tax reform should therefore be about broadening the base rather than simply increasing the pressure on those already inside it.
For productive sectors, the objective should be simple: lower and more predictable energy costs. Cheaper and reliable electricity can contribute more to export competitiveness than another short-term incentive package.
Exports Are the Real Test of Growth
Exports provide perhaps the clearest test of whether stabilization can become sustainable growth. Pakistan’s merchandise exports were around $30.13 billion in FY2025-26, while imports were about $69.6 billion, leaving a trade deficit of roughly $39.5 billion. Remittances reached $41.585 billion, an increase of 8.6 percent. (PBS; SBP) The early numbers for FY2026-27 are more encouraging on exports, but they also underline the external challenge. Exports increased 10.84 percent to $8.42 billion during July-September 2026. September exports alone rose 17.61 percent to $2.94 billion. But imports increased faster, by 13.21 percent to $19.22 billion, pushing the quarterly trade deficit up 15.13 percent to $10.79 billion. (PBS)
One strong quarter is not enough. Pakistan needs export growth that is sustained and increasingly based on higher-value products, new markets, better productivity and stronger services and IT exports.The Prime Minister has publicly called for export-led growth and expressed concern about export performance despite government support. The debate should now move from blame to measurable responsibility. Government should be assessed on the cost and predictability of doing business, while industry should be assessed on investment, productivity, diversification and export results. Export facilitation should also produce measurable outcomes. Refunds and duty drawbacks should be paid on time, duties on raw materials should remain low and predictable, and clearance procedures should become faster. Quarterly indicators could include new exporters, new markets, higher-value products, export volumes and clearance times.
The External Account Still Needs Care
The external position has improved, but it remains vulnerable. The current account deficit during July-August FY2026-27 was $543 million, 36 percent lower than the $853 million recorded in the same period a year earlier. Remittances and services receipts have provided important support. (SBP) Yet the external account cannot depend indefinitely on remittances and borrowing. A durable external position requires stronger merchandise exports, expanding services receipts and higher productive investment. The differences between various projections for the FY2026-27 current account deficit also show the uncertainty surrounding the outlook. This is precisely why export competitiveness and import efficiency must become central components of the growth strategy.
Inflation Remains a Major Concern
Inflation is the warning light that households feel most directly. CPI inflation rose to 10.3 percent in September 2026, compared with 11.1 percent in August and 5.8 percent in September 2025. Wholesale price inflation was considerably higher at 13.3 percent. (Pakistan Bureau of Statistics) For ordinary families, the impact is cumulative. Macro stability does not automatically translate into greater purchasing power when prices remain elevated. The State Bank has kept its policy rate at 11.5 percent, while its medium-term inflation objective remains 5 to 7 percent. Monetary policy therefore needs to remain data-driven while the government addresses the supply-side factors behind persistent price pressures. (SBP)
The government’s FY2026-27 growth target is around 4 percent, while the State Bank’s projection is in the range of 3.5 to 4.5 percent. The government’s assumptions include growth of 3.6 percent in agriculture, 4.5 percent in industry and 4.2 percent in services. The bigger question, however, is not simply whether GDP reaches 4 percent. It is what kind of growth Pakistan achieves.
Growth driven primarily by consumption and imports can quickly recreate external pressure. Sustainable growth must come from private investment, productive capacity, exports, industrial expansion, agricultural productivity and competitive services. This is where the government’s reform agenda needs to move beyond compliance with programme benchmarks. IMF targets can provide discipline, but the ultimate measure of economic policy should be whether businesses invest, factories expand, productivity improves, exports increase and employment opportunities grow. Pakistan does not need another long list of reforms. Most of the major reforms have already been identified. The priority now is implementation and measurable results.
First, reduce the cost of power for productive sectors. Theft and technical losses must be reduced, distribution companies must be held to measurable performance standards, capacity-related costs should continue to be reviewed, and avoidable taxes and charges on industrial electricity bills should be examined. Targeted support should protect vulnerable households without distorting the economics of the power sector.
Second, make exporting easier and cheaper. Refunds and duty drawbacks should be paid on time. Duties on raw materials should remain low and predictable. Trade facilitation measures should be assessed through measurable indicators such as clearance times, logistics costs, new exporters, new markets and higher-value products.
Third, widen the tax base. Data matching across banks, utilities, property records and other databases can help identify economic activity outside the tax net. Retailers, wholesalers, real estate and agricultural income should be brought into a broader and fairer tax framework rather than continuing to squeeze documented businesses.
Fourth, give investors policy certainty. A three-year framework covering taxation, energy pricing and import policy would allow businesses to plan investment with greater confidence. Frequent changes in rates, rules and regulatory requirements can discourage investment even when the overall policy direction is sound.
Fifth, apply the same implementation discipline to state-owned enterprises. Each major SOE should have clear performance targets, professional boards and a defined timetable. Where restructuring or privatization makes economic sense, the process should move forward. Where the state retains ownership, taxpayers should be able to see measurable improvements in performance.
Finally, every major reform should identify the responsible institution, establish a deadline and be reviewed quarterly against measurable outcomes. Economic performance should also be assessed beyond GDP, through private investment, industrial productivity, exports and employment.
Pakistan has done the hard part of restoring a degree of economic stability. Reserves have improved and fiscal discipline has held. This breathing space should now be used to change the structure of growth, not just to preserve stability. The real test will come beyond IMF reviews and headline GDP numbers. It will be seen in factories investing again, in businesses facing lower and more predictable costs, and in exports moving into higher-value products and new markets. Stability has given Pakistan a second chance. The task now is to turn it into investment, competitiveness and lasting growth.