he near end of 2025 has brought a rare turning point in Pakistan’s political economy, as a long deferred reform finally materialised through the successful privatisation of Pakistan International Airlines. The prudent and crucial decision to finally divest 75 percent stake in the national carrier symbolises more than a transaction. It reflects a broader shift in policy thinking toward fiscal pragmatism, asset monetisation and reduction of recurrent losses that have been heavily weighing on public finances for decades.

The successful $482 million bid on December 23, signaled renewed investor confidence in Pakistan’s reform direction and allowed the government to reduce its direct exposure to PIA, a chronically loss making enterprise, easing pressure on budgetary transfers and contingent liabilities. According to a government source, “7.5 percent of the proceeds from the sale of PIA will go into the national exchequer. The rest will be reinvested in the airline to improve its infrastructure.”

The privatisation of PIA has an immediate and measurable fiscal impact. The reduction in annual subsidies, guarantees and bailout requirements will improve the government’s cash flow and strengthen credibility with international lenders. The transaction highlighted the government’s stated intent to rationalise its commercial footprint and redirect scarce public resources toward priority areas such as social protection, infrastructure and debt servicing. The political economy significance of this move lay in its timing, as it coincided with a period when, after years of stress, Pakistan is working to rebuild macroeconomic credibility.

Apart from the privatisation of PIA, 2025 can also be described as a year of stability, reform and cautious optimism where the economy exhibited some signs of improvement and certain key indicators posted positive results. The economy had entered 2025 after several years of macroeconomic instability defined by high inflation, balance of payments pressures and weak investor sentiment. The shift toward relative stability was underpinned by fiscal discipline, improved coordination with provinces and sustained engagement with international financial institutions, particularly the International Monetary Fund.

The fiscal performance during 2025 showed significant improvement on revenue front. The Federal Board of Revenue collected Rs 11.744 billion during fiscal year 2024-25, compared to Rs 9.299 billion in FY 2023-24, reflecting an annual increase of Rs 2.4 trillion or 26.3 percent.

The achievement of a double digit tax to GDP ratio of 10.3 percent termed a significant departure from the decade long average of 8.7 percent and highlighted progress in revenue mobilisation. The slower growth of 10.2 percent in FBR collections during the first five months of current fiscal years highlights the challenges ahead and the need for accelerated efforts to meet annual targets, even as lower than budgeted interest payments provided some fiscal space to contain the deficit.

The growth performance of the economy also showed resilience. The Pakistan Bureau of Statistics revised the GDP growth rate for FY 2025 upward to 3.04 percent from an earlier estimate of 2.68 percent. The revision reflected improved performance across agriculture, services and select industrial segments, despite a challenging global environment. The improvement was acknowledged by international rating agencies, which revised Pakistan’s credit outlook. Similarly, sovereign default risk that once dominated market discourse receded considerably, with the pace of recovery ranked among the fastest globally.

The security and geopolitical environment continued to shape economic outcomes. The persistent security challenges in border regions and episodic regional tensions imposed costs on investor confidence and public spending priorities. At the same time, Pakistan pursued economic diplomacy.

The monetary and debt dynamics of 2025 further supported stability. The elevated interest rate environment of previous years had forced private sector activity and pushed the government deeper into a high-cost debt cycle. The easing of inflation allowed the State Bank of Pakistan to adopt a more accommodative stance. In December, the Monetary Policy Committee reduced the policy rate by 50 basis points to 10.5 percent, bringing cumulative cuts to 11.5 percent over two years. The lower rate environment enabled the government to re-profile its debt, retire expensive liabilities and refinance at more sustainable costs.

The external sector’s performance provided one of the strongest signals for macroeconomic improvement. The posting of a current account surplus of $2.1 billion in FY 2025 showed the first surplus in fourteen years and was driven largely by strong workers’ remittances and improved import management. The subsequent re-emergence of a current account deficit of $812 million during the first five months of FY 2026 underscored ongoing vulnerabilities, but the broad trend reflected greater discipline in managing external accounts compared to the previous cycles.

The domestic fiscal stance was reinforced by a record primary surplus of Rs 2.7 trillion, equivalent to 2.4 percent of GDP. The achievement reflected coordinated efforts by federal and provincial governments to contain non-development expenditure and improve revenue performance. The primary surplus strengthened Pakistan’s negotiating position with creditors and highlighted the seriousness of its fiscal adjustment under the IMF programme.

The improvement in macroeconomic conditions was mirrored in financial markets. The Pakistan Stock Exchange delivered record breaking performance during the year, crossing milestones of 150,000 and later 170,000 points. The equity market performance became a visible indicator of restored market sentiment.

The engagement with the IMF remained predominant to Pakistan’s political economy in 2025. The continuation of the 37-month $7 billion Extended Fund Facility anchored fiscal discipline, energy sector reforms and governance measures. The IMF’s assessments highlighted both progress and persistent structural weaknesses, including narrow tax bases, state owned enterprise inefficiencies and governance gaps. The political economy challenge remained balancing reform conditionality with domestic social and political pressures.

The year 2025 also witnessed significant debate around digital finance and crypto regulation. The state moved cautiously toward a regulated framework for virtual assets, signaling intent to shift from prohibition toward oversight and compliance. The discussions reflected broad global trends and Pakistan’s need to address informal capital flows, financial inclusion and technology driven innovation by remaining aligned with IMF conditions and financial stability concerns.

The security and geopolitical environment continued to shape economic outcomes. The persistent security challenges in border regions and episodic regional tensions imposed costs on investor confidence and public spending priorities. At the same time, Pakistan pursued economic diplomacy aimed at improving its global image, attracting foreign investment and positioning itself as a reforming economy rather than a crisis prone one.

The political economy of 2025 ultimately reflected a year of transition rather than transformation. The combination of PIA privatisation, fiscal consolidation, reduction in policy rate and external sector adjustment did not eliminate structural challenges, but it did restore a measure of credibility and predictability.

The year will be remembered positively as the national economy managed to move to a more resilient position than it had occupied at the beginning, showing that measured macroeconomic consolidation, though inherently delicate, is attainable through disciplined policy execution and sustained institutional reform.

Dr Ikram-ul Haq, writer and advocate of the Supreme Court, is an adjunct teacher at Lahore University of Management Sciences.

Abd-ul Rauf Shakoori is a corporate lawyer based in the USA