Pakistan’s long engagement with the IMF has produced a pattern of systematic destruction: in the name of stabilisation, fiscal consolidation and ‘reform’, Pakistan has been subjected to a policy mix that has dramatically raised energy costs, imposed highly regressive taxation, throttled industrial production, increased poverty and pushed the economy towards de-industrialisation
The strategy for Pakistan’s socio-economic development should have centred on strengthening education, science, technology, and innovation, enabling the country to move from a low-value, natural-resource-based economy to a high-value-added, technology-driven knowledge economy. The exact opposite has happened, which now poses a huge existential threat: our schools, colleges and universities lie in tatters, our exports have declined to about $30 billion after touching $35 billion, the poverty has increased substantially and there has been a mass migration of talented youth and industrial groups to greener pastures abroad.
In the past five years, Pakistan’s industrial landscape has experienced a dramatic contraction, with hundreds of local manufacturing units shutting down as a direct result of rising energy costs, heavy tax burdens and pervasive policy uncertainty. Business leaders have claimed that more than 50 per cent of factories in major industrial zones have closed, as firms struggle to compete with smuggled, under-priced imports and to cope with two-tier tax burdens that stifle growth.
Regional data shows similar trends at the provincial level: in Khyber Pakhtunkhwa alone, about 795 industrial units are said to have closed in roughly six years, a significant proportion of which have ceased operations in the last half-decade due to unaffordable utility costs and waning investment confidence. The textile sector, Pakistan’s traditional export engine, has been particularly devastated: industry sources estimate that at least 144 textile mills have shut down nationwide, while broader garment-sector closures have led to tens of thousands of jobs lost and declining export competitiveness.
The wave of corporate exits from Pakistan includes global names such as Microsoft, which is completely shutting down its Pakistan operations after 25 years, and companies including Careem, Shell, Telenor, Procter & Gamble and others that are either exiting or scaling back their presence amid currency volatility, inflationary pressures, and regulatory uncertainty. These departures signal a deteriorating investment climate in which both foreign and local enterprises find it increasingly difficult to plan long-term, secure capital and compete with regional rivals that benefit from more predictable policies and cost-competitive inputs.
A sharp, immediate change of direction is needed to transition Pakistan to a knowledge economy and begin manufacturing and exporting high-value-added, high-technology industrial goods, enabling us to reach over $100 billion in exports within a decade.
Pakistan has entered IMF programmes 23 times since 1958, more than almost any other country, and the recent cycle has been among the most aggressive. According to a research report by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on the historical impact of IMF programmes, Pakistan’s industrial growth during IMF programme periods has been 2.27 percentage points lower, and GDP growth 1.44 percentage points lower, than in non-IMF years.
According to research from the Pakistan Institute of Development Economics (PIDE), the base electricity tariff was raised twice in 2023, resulting in a cumulative increase of roughly 76 per cent in a single year. A second PIDE study on energy pricing for industry documents that between 2022 and mid-2023 industrial power tariffs escalated from roughly Rs20 per kilowatt-hour to Rs9-45 per kilowatt-hour, while the total delivered cost, including fuel adjustments and taxes, climbed from around Rs28 to nearly Rs50 – approximately a 78 per cent increase in about twelve months.
Pakistan’s average industrial electricity price surged to around $0.15 per kilowatt-hour, roughly double Vietnam’s and significantly above India’s and Bangladesh’s. Energy-intensive exporters, already squeezed by exchange-rate volatility and working-capital constraints due to record-high interest rates, found themselves priced out of global markets.
The predictable consequence has been a collapse in grid demand and accelerating de-industrialisation. Many factories in Karachi, Faisalabad and Sialkot have reduced shifts or closed outright, while others are fleeing the central grid. Major firms – from Forward Sports and Coca-Cola to Hyundai – have been forced to make massive capital investments in solar power to survive. While this transition helps individual firms survive, it has paradoxical macroeconomic effects: grid demand falls, circular debt persists because fixed IPP capacity payments must still be made, and the remaining captive consumer base is squeezed even further.
Circular debt continues to hover near Rs2.4 trillion despite repeated tariff hikes. The IMF’s policy logic assumes that higher tariffs restore solvency, but the Pakistani case shows the opposite: high tariffs cause demand destruction, de-industrialisation and load flight, which undermines the very revenue base required to service fixed system costs – a classic ‘death spiral’ in utility economics.
The aggressive tax policy reshaping imposed under IMF conditionalities has caused further damage. The IMF has demanded that Pakistan raise its tax-to-GDP ratio by roughly three percentage points within a short horizon. To hit headline revenue targets, the state has resorted to broad-based tax increases rather than structural base-widening.
The 2023-24 budget cycle and subsequent supplemental measures pushed Federal Board of Revenue collections up by almost 30 per cent, with sharp increases in sales tax, customs duties and federal excise duties. Petroleum, already a basic input in transport and industry, became the easiest fiscal instrument. The petroleum levy was raised to Rs80 per litre by 2025, substantially increasing the average household.
The combined energy-tax-monetary stance imposed by the IMF has battered Pakistan’s industrial sector. Large-scale manufacturing output contracted sharply by approximately 10.9 per cent in 2023, according to sectoral analyses, and then stagnated with a fractional contraction of around 0.03 per cent in 2023-24, as reported by the Pakistan Bureau of Statistics. Industrial GDP fell by roughly –3.8 per cent in FY2023 and –1.6 per cent in FY2024. Poverty increased from about 20 per cent in 2020 to 25 per cent in 2025.
What makes the situation appear deliberate or ‘sinister’ to many observers is the consistency of the outcome: productive sectors are squeezed, middle-class consumption is eroded, the poor are taxed indirectly and elites retain their privileges. More capital is pushed into speculation, real estate, dollar-denominated assets and foreign relocation, while less is invested in plant, machinery, R&D and export upgrading. A long-term growth engine is quietly dismantled in the name of short-term stabilisation.
The death knell is ringing, but let it not fall on deaf ears. For industrialists in Faisalabad, for textile exporters in Karachi, for SMEs in Sialkot and for the working poor from Tharparkar to Khyber, this existential threat is not theoretical – it is already here. The time to act is now before it is too late.
The writer is a former federal minister, Unesco science laureate and founding chairperson of the Higher Education Commission (HEC). He can be reached at: [email protected]
