ISLAMABAD: Pakistan is entering the final year of its $7 billion, 37-month Extended Fund Facility with the International Monetary Fund (IMF), bringing the country to an important economic crossroads.
The key question is no longer simply whether Pakistan can complete another IMF programme, but whether it can strengthen its economy enough to avoid repeatedly seeking emergency financial assistance in the future.
Pakistan’s economic position has improved considerably compared with the crisis faced in 2023. Foreign exchange reserves have increased, with State Bank reserves reaching around $21.4 billion and total liquid reserves standing at approximately $26.8 billion.
The improved reserve position provides Pakistan with a stronger financial cushion and nearly three months of import cover. The country has also regained access to international capital markets.
In September, Pakistan raised $3 billion through a dual-tranche Eurobond, while investor demand reportedly reached almost $6 billion. The successful bond sale indicated renewed international investor confidence and provided Pakistan with another source of external financing.
A proposed $10 billion exchange stabilisation facility from the United States could provide an additional safety net if the arrangement is finalised. The facility is still under discussion and is not being described as a conventional loan or grant.
Pakistan’s external position has also benefited from a strong increase in workers’ remittances. Remittances reached a record $41.6 billion in fiscal year 2026, compared with $27.3 billion three years earlier.
Services exports have also expanded beyond $10 billion, with information technology and digital services contributing significantly to the growth. ICT exports reached approximately $4.6 billion in fiscal 2026, recording annual growth of more than 20%.
Another positive development has been the improvement in Pakistan’s current account. The account has remained in surplus or broadly balanced for the first time in around 14 years.
The government is also maintaining a sizeable primary fiscal surplus, meaning government revenues are exceeding expenditures before interest payments.
Pakistan’s growing shift towards solar energy could also help reduce pressure on the country’s import bill. The transition is expected to reduce energy import costs by billions of dollars, depending on international oil prices.
However, merchandise exports remain one of Pakistan’s biggest economic weaknesses. Goods exports have remained largely within the $25 billion to $32 billion range for around 15 years, while imports have continued to rise and contribute to the trade deficit.
The country is now in the second year of a five-year trade liberalisation programme, with reforms expected to have a greater impact over the next two to three years. If successfully implemented, these measures could help increase exports and reduce the trade deficit.
Privatisation has also gained momentum. The sale of Pakistan International Airlines ended a long-running process, while the privatisation of several electricity distribution companies has moved towards investor engagement and transaction stages.
Despite these improvements, Pakistan remains vulnerable to external and domestic economic shocks. Higher international oil prices, geopolitical tensions, weaker capital inflows or renewed fiscal problems could once again put pressure on the balance of payments.
The country also faces substantial external financing requirements and debt repayments in the coming years. Strong foreign exchange reserves provide protection, but they cannot permanently compensate for weak exports and large debt obligations.
The next 12 months are therefore crucial for Pakistan’s economic future. The country needs to complete the current IMF programme successfully while maintaining fiscal and monetary discipline.
At the same time, policymakers need to focus on building an economy that can generate sufficient exports, attract investment and manage external financing requirements without repeatedly turning to emergency IMF programmes.
The long-term objective should not simply be to complete another IMF arrangement. Instead, Pakistan should aim to make the current programme its last bailout programme by strengthening the economic foundations needed for sustainable growth and stability.
