• Economists see little room for growth under IMF programme
• Economy stuck in low-growth equilibrium as consumers’ purchasing power erodes
• Exports, energy costs, policy inconsistency remain major hurdles

WITH the government preparing to roll out its third budget, the economy appears trapped between two competing imperatives: preserving fragile macroeconomic stability to avoid another balance-of-payments crisis and reviving growth to create jobs and alleviate poverty.

While the government continues to flaunt stabilisation as an achievement in itself, a sen­se of “stabilisation fatigue” app­­e­ars to have settled in amo­ng businesses and households.

The fatigue stems from a sim­ple reality: Pakistan has spent much of the last three years man­aging crises rather than building sustainable gro­wth drivers. No wonder the economy remains stuck in repe­a­ted cycles of adjustment and a low-growth equilibrium — stable enough to avoid collapse, but too weak to generate prosperity.

The IMF-mandated adjus­t­ment policies — tight monetary policy, fiscal contraction, dem­and compression, import controls, and energy price hikes — have helped restore external stability, narrow the twin deficits, moderate inflation, and bring back some semblance of macroeconomic order.

But the social and economic costs of prolonged stabilisation are now more visible than its benefits. Industries continue to operate below capacity, businesses remain hesitant to invest and consumers continue to struggle with eroded purchasing power. For most Pakistanis, the lived economy remains far harsher than the official narrative of recovery suggests.

Several deep-rooted wea­k­­nesses continue to obs­truct any transition towards sustainable growth. Exports remain weak, energy costs and inefficiencies continue to undermine industrial competitiveness, policy inconsistency deters investment and high interest rates have compressed private-sector activity.

A large portion of government revenues is absorbed by debt servicing, defence spending and subsidies, leaving limited fiscal space for development, relief and industrial support.

The upcoming budget is unlikely to break the economy away from this path of austerity. Growth prospects offer little comfort. Some analysts believe GDP gro­wth in FY27 could remain closer to 3-3.5pc if crude oil prices stay elevated amid prolonged Mid­dle East tensions, well bel­ow the government’s tar­get of 4.1pc. Average gr­owth over the last three years has remained below 2pc.

The budget will almost certainly be framed within the IMF’s Ext­ended Fund Facility, analysts at Topline and JS Global, two Karachi-based brokerage firms, wrote in their pre-budget analyses. They said the government would target a fourth consecutive primary surplus, push for stronger revenue mobilisation and pursue fiscal restraint.

Little room for growth

Development economist Naved Hamid sees little room for growth under the IMF programme. “We don’t really have any room. This budget will be an austerity budget like before,” he said.

Economist Waqar Wadho is also not hopeful about the economy moving out of its low-growth mode. “The biggest issue remains structural problems. They are exactly where they were before. Even targeting 3-5pc growth would be a marginal change, not a major shift,” he said.

He said growth would remain elusive because it was not the IMF’s mandate. “The IMF’s mandate is stabilising external balance. Under an IMF programme, growth-oriented policy is simply not possible,” he said.

The constraints facing growth are serious. The revenue target for next year, for example, has been upgraded by the IMF to quantitative performance criteria, a binding commitment rather than a soft benchmark. This further tightens the screws around the government after repeated failures to meet targets.

Pakistan Banks Association Chairman Zafar Masud said the problem lay deeper than collection shortfalls.

“The centre of gravity of our economic problems is unsustainable government finance,” he said. “The issue is not the scale of government spending per se. The issue is the weakness of revenue generation, cross-subsidy and its leakages and fiscal efficiency. The FY27 budget is an opportunity to break Pak­i­s­tan’s recurring low-growth, high-debt equilibrium.” This raises the uncomfortable question: stabilisation for what?

Mr Masud believes growth is possible even under the IMF programme. “The IMF programme buys stability, not growth. Stability is necessary, but growth is what ultimately reduces poverty and impr­oves living standards. It’s the micro-economic interventions which can bring the necessary growth. With limited fiscal space, leveraging private-sector funding becomes a game-chan­ger for achieving the economic multiplier,” he said.

Mr Hamid agreed that some room existed for improvement, but he sounded less optimistic.

“Yes, there is some room to improve even under the IMF progra­mme. But whether you look at private-sector investment, early indicators or any visible government strategy, I do not see anything big or substantial happening,” he said.

The recently released Shadow Economic Survey 2026-27, published by an Islamabad-based think tank financed by a business lobby, acknowledged that stabilisation was necessary. However, it warned that stabilisation was defensive economics; it may prevent collapse, but it does not automatically generate growth, jobs, investment or prosperity.

Many business leaders say it is unfortunate that economic success is now measured through reserve accumulation, current account balances and IMF review completions.

Managing immediate crises appears to have tak­en precedence over pursuing a growth agenda. This may reassure lenders and financial markets, but it cannot satisfy a population facing declining real inc­o­mes and disappearing jobs.

Mr Masud described the current economic predicament as a failure of policy design. “Pakistan’s recurring balance-of-payments crises are downstream symptoms of unresolved structural fiscal distortions — distortions that have been patched in the past rather than fixed,” he said.

Beyond stabilisation

Pakistan’s growth predicament stems from an economic model dependent on imports and external financing. Historically, whenever growth accelerates beyond a modest threshold, imports surge because the domestic industry relies heavily on imported machinery and inputs, while exports fail to keep pace.

The current account def­icit widens, foreign exc­ha­nge reserves come under pressure and the country eventually returns to the IMF for another bailout. The deeper structural weaknesses remain unresolved.

Aware of public pressure, the government is reportedly considering limited relief measures for salaried classes and compliant businesses despite fiscal constraints. These concessions, however modest, could create an additional revenue gap.

Mr Wadho is sceptical that any meaningful relief will materialise.

“They are unable to broaden the tax base, so there will be pressure. For public optics, they may trim a few headline items here and there. But then they will squeeze people indirectly, say, in the form of an even higher petroleum levy, and everyone will feel that,” he said.

Mr Masud argued that Pakistan should widen the tax base rather than continue raising tax rates.

“Tax-base expansion with­out punitive rates should be one of the defining objectives of the coming budget. Sustainable deficit reduction requires stronger revenue generation and lower leakages, not higher tax rates,” he said. Business leaders argue that the IMF programme can provide temporary stability and policy discipline, but it cannot substitute for a long-term national growth strategy based on reforms.

“Confidence cannot be restored through macroeconomic management alone,” a textile exporter said, adding that public belief had weakened that economic sacrifices today would eventually lead to tangible improvements in living standards.

Economists say Pakistan does not need another stabilisation budget dressed in the language of reform. It needs a redesign of its growth model: from consumption-driven, import-financed expansion to export-oriented, productivity-led growth.

Such a transformation requires reforms that successive governments have continued to delay because they are politically costly and slow to yield visible rewards.

The new budget will be judged not by whether it satisfies the IMF’s performance criteria, but by whether it offers any credible signal that Pakistan is finally charting a course beyond mere survival.

As Wadho put it: “The choice before the budget makers is clear: reform, delay or another lost cycle.”

Published in Dawn, June 3rd, 2026