Pakistan’s repeated return to the International Monetary Fund is often attributed to bad luck – oil shocks, floods, geopolitics or global interest rates.
These factors matter, but they are rarely decisive. Many countries exposed to similar shocks have broken free of IMF dependence. Pakistan has not. The difference lies at home: in how governance functions, how economic decisions are taken, and how incentives shape behaviour across the state and the market.
The prime minister’s call for a post-IMF exit strategy is welcome. Thinking beyond programmes is necessary. But exits are not built on projections, buffers, or medium-term frameworks. They are built on credible governance reform and a decisive shift in priorities – away from excessive government and discretionary regulation and towards a competitive, market-driven economy that rewards productivity, innovation and entrepreneurship.
Plans are not the constraint; execution, credibility and accountability are. Every IMF programme has come with an exit narrative. Each delivers temporary stabilisation – exchange-rate calm, reserve relief, fiscal breathing space – followed by policy slippage once pressure eases. The same behaviours that created the crisis resurface, confidence erodes and another programme becomes inevitable. This is not a failure of arithmetic but of political economy.
For too long, IMF programmes have been treated as crisis-management instruments rather than catalysts for structural change. Targets are negotiated and reviews cleared, but reforms that could lift productivity and competitiveness remain deferred. Fiscal consolidation is undone by ad-hoc spending and consumption-heavy imports. Energy pricing reform is postponed repeatedly. Tax policy protects narrow privileges while burdening compliant sectors, pushing activity into informality and discouraging productive investment. Loss-making state enterprises continue to drain public resources. The programme ends; the habits persist.
This pattern reflects an equilibrium in which failure carries little cost for decision-makers, while the productive economy bears the pain. As long as this equilibrium holds, Pakistan will stabilise during programmes and relapse once they end. The crisis is often reduced to technical gaps – revenue shortfalls, current account deficits or debt rollover risks.
These are real and urgent problems. Yet they are symptoms of a deeper malaise: dysfunctional governance driven by distorted incentives, weak enforcement, discretionary controls and institutions unable to commit credibly to policies that foster competitive private enterprise. Markets do not respond to announcements; they respond to behaviour. When rules are negotiable and enforcement selective, policy loses meaning.
Treating governance reform as a peripheral issue guarantees that IMF exits remain rhetorical. Governance must sit at the centre of economic strategy. A credible post-IMF path requires disciplined decision-making and accountability at both federal and provincial levels. Provinces control key domains – education, health, skills, land, and local regulation – but lack the institutional capacity to deliver outcomes. Extracting more value from limited resources will require stronger institutions, clearer mandates and performance-based accountability throughout the state.
Meritocratic leadership and robust performance evaluation in institutions that drive socio-economic outcomes are central to this change. No nation escapes IMF dependence with politicised economic management that rewards rent-seeking over results. Central banks, regulators, revenue authorities, strategic SOEs, public financial management institutions and provincial education and skills departments must be led by professionals with competence, protected tenure and clear accountability. Institutional credibility is the foundation of policy continuity and effectiveness.
Governance reform alone, however, is insufficient if it merely makes a control-heavy state more efficient. Pakistan’s deeper problem is misplaced priorities. For decades, the state has tried to manage prices, allocate credit, protect incumbents, and pick favourites, but has failed to enforce, compete or deliver services. The result is the worst of both worlds: neither an effective state nor a functioning market economy.
Escaping the IMF trap requires a shift towards a focused state and competitive markets. This does not mean a smaller state for its own sake. It means a state that enforces contracts, protects property rights, ensures competition, and exits commercial activities it cannot manage efficiently. Markets work when rules are predictable and enforcement is even. They fail when outcomes are negotiated.
Pakistan regulates where it should enable and intervenes where it should withdraw. Flawed licensing regimes, discretionary approvals, overlapping regulators and policy uncertainty suppress entrepreneurship and reward rent-seeking. Reform must therefore embrace less and smarter regulation – transparent rules, predictable enforcement and equal treatment.
This is especially relevant to the Ministry of Planning’s recent ambition to raise exports to over $60 billion. Ambition is necessary: Pakistan cannot exit IMF dependence without export momentum. But targets alone will not deliver. Exports have stagnated around $30 billion to $35 billion for nearly a decade because competitiveness fundamentals remain weak. Doubling exports requires sustained improvements in cost structures, reliable energy, efficient logistics, a predictable tax and regulatory regime and stable trade policies. In short, it requires credible institutions and policy consistency – not only roadmaps and committees.
An export-led strategy also exposes a contradiction. It requires markets to allocate resources and penalise inefficiency, yet Pakistan continues to shield firms through protection, discretionary incentives, and negotiated compliance. You cannot produce globally competitive exporters while insulating domestic firms from competition and failure.
The private sector’s low investment and weak innovation are often criticised. But in a system that rewards arbitrage, cartels, real-estate speculation, and political access more than productivity and risk-taking, such behaviour is rational. Shifting priorities must alter incentives so that exporting and innovation are more profitable than speculation, scale is rewarded over fragmentation, and failure is treated as part of entrepreneurship, not stigma.
Fiscal reform is equally critical. Sustainability cannot be achieved by repeatedly raising tax rates on a narrow base, a strategy that suppresses investment and steadily expands the informal economy. Pakistan needs broad-based taxation at significantly lower rates, credible medium-term budgeting and strong public financial management. Ad-hoc subsidies and politically motivated spending erode fiscal credibility faster than external shocks. Loss-making SOEs persist not because they are indispensable, but because they remain politically convenient.
Human capital must be treated as economic infrastructure. Pakistan’s demographic advantage is eroding due to weak educational quality, poor skills and low labour productivity. Expanding enrolment without improving outcomes produces credentials, not capability. A productive economy requires skills aligned with market demand and momentum in technology-driven innovation – the real engine of 21st-century productivity.
Ultimately, the hardest reform is a mindset shift. Pakistan’s policymaking culture is shaped by distrust of markets and fear of letting go. Controls, approvals and moral policing of profits reflect that mindset. Countries that escaped IMF dependence did so by trusting markets while strengthening institutions, not by micromanaging outcomes.
Escaping the IMF trap is not about negotiating a better programme or announcing bigger targets. It is about changing how the state governs, how incentives are structured and how accountability works. Exits are not declared; they are earned.
The road out exists. But it runs through better governance at federal and provincial levels, a decisive shift towards competitive markets, and the courage to replace control with performance. Until then, the IMF will remain not a bridge to sustainable growth, but a recurring destination.
The writer is a former managing partner of a leading professional services firm and has done extensive work on governance in the public and private sectors. He tweets/posts @Asad_Ashah
