Pakistan stands at IMF crossroads

As Pakistan moves into the final year of its $7 billion, 37-month Extended Fund Facility with the International Monetary Fund, policymakers face a much bigger question than simply completing the existing arrangement: what will the country do once the programme ends? For perhaps the first time in decades, Pakistan has a realistic chance to step away from its repeated reliance on IMF programmes. The economy remains exposed to significant risks, and the structural weaknesses behind successive balance of payments crises are still present. However, the country is entering this final year in a far stronger position than it was during the crisis of 2023. Pakistan's foreign exchange position has improved considerably, providing a much larger cushion than it had two years ago. State Bank reserves have increased to around $21.4 billion, while total liquid reserves, including commercial banks' holdings, have reached approximately $26.8 billion. The central bank's reserves now provide nearly three months of import cover. The country has also returned to international capital markets. In September, Pakistan secured a record $3 billion through a dual-tranche Eurobond, with investor orders reaching almost $6 billion. The successful issuance indicates that global investors are once again willing to provide financing to Pakistan, giving the country an additional source of funds alongside official creditors. A proposed $10 billion exchange stabilisation facility from the United States could provide further protection. The proposal remains under discussion and would not constitute either a loan or a grant. If finalised, it could serve as a financial safety net and help improve confidence in Pakistan's markets. More significantly, Pakistan's broader external position has strengthened substantially since the 2023 crisis. Workers' remittances, in addition to the strong rise in foreign exchange reserves, reached a record $41.6 billion in fiscal 2026, compared with $27.3 billion three years earlier. Services exports have surpassed $10 billion, with information technology and digital services accounting for much of the growth. ICT exports alone stood at about $4.6 billion in fiscal 2026, recording annual growth of more than 20%. Pakistan's current account, which captures transactions with the rest of the world, including trade, investment and transfers, has remained either in surplus or broadly balanced for the first time in 14 years. At the same time, the government is maintaining a sizeable primary surplus, meaning its revenues are greater than expenditure before interest costs are taken into account. The country's accelerating shift towards solar energy is also helping reduce its dependence on imported fuel. The transition is expected to cut the annual energy import bill by approximately $5 billion to $8 billion, depending on global crude oil prices. Merchandise exports remain the major area of the economy where progress has been disappointing. They have stayed broadly between $25 billion and $32 billion for nearly 15 years. Meanwhile, rising imports have contributed to a widening trade deficit. There are still grounds for measured optimism. Pakistan has entered the second year of a five-year trade liberalisation programme, and its effects are expected to become more visible during the next two to three years. The reforms could support export growth while helping reduce the country's trade deficit. Privatisation has also gained momentum. The sale of Pakistan International Airlines has brought an end to a long-running impasse, while the privatisation of the first three electricity distribution companies has moved towards investor engagement and transaction stages. Authorities are also preparing additional state-owned enterprises and public assets for possible divestment. These improvements, however, do not guarantee that Pakistan will remain free from another crisis. A sharp rise in oil prices, geopolitical tensions, an abrupt decline in capital inflows or renewed fiscal weaknesses could once again create pressure on the balance of payments. The country's external financing requirement for 2027-28 alone shows how vulnerable it remains. Strong reserves provide important protection, but they cannot permanently make up for weak exports and substantial debt repayment obligations. That makes the next 12 months especially important. Pakistan should focus on completing the current IMF programme successfully. It should continue benefiting from the Fund's technical expertise while maintaining the fiscal and monetary discipline introduced under the programme. At the same time, the country should avoid assuming that the end of the current arrangement must automatically lead to another IMF bailout. The goal should instead be to transform the IMF's role from emergency financier to long-term economic adviser. Leaving behind repeated IMF programmes would not mean Pakistan had eliminated all of its economic difficulties. Rather, it would demonstrate that the country had developed the strength and resilience needed to manage those challenges without repeatedly seeking another bailout. That is the real measure of success for the current programme: not simply completing another IMF arrangement, but making this one the last.