eserve-related liabilities of the State Bank of Pakistan include all foreign exchange liabilities to residents (except general government) or nonresidents, including: (i) foreign currency liabilities, excluding liabilities to the general government, with remaining maturity of one year or less; (ii) foreign exchange liabilities of the SBP and general government arising from derivatives positions (such as futures, forwards, swaps and options) on a net outstanding basis (defined as the long position minus the short position); (iii) outstanding IMF credits to Pakistan; and (iv) foreign exchange deposits with the SBP of foreign governments, foreign central banks, foreign deposit money banks (excluding regulatory capital deposits of foreign banks with the SBP), international organisations and foreign non-bank financial institutions, as well as domestic financial institutions (excluding regulatory capital deposits of domestic financial institutions with the SBP). The reserve-related liabilities of the SBP exclude SDR allocations and accrued interest on reserve-related liabilities—IMF Country Report No 25/332, December 2025

The Pakistani economy moved into a visible stabilisation phase in 2025. Financial markets are now calmer. Exchange-rate pressures have eased. Inflation has moderated from crisis peaks. Yet this stability rests on fragile foundations. It is driven largely by IMF-backed adjustments and external inflows rather than by durable structural reform.

Completion of the second review under the 37-month, $7 billion extended fund facility (EFF) programme of the International Monetary Fund and the first review under the Resilience and Sustainability Facility has improved short-term confidence. These reviews confirm that Pakistan met most quantitative targets by end-June 2025. Further tranches have been approved. But programme compliance alone does not guarantee economic transformation.

The recent assessment by the IMF shows that growth in fiscal year 2025 exceeded initial projections. The economy benefited from stronger domestic demand and improved financial conditions. Import controls and remittance inflows helped the current account post its first surplus in fourteen years. Inflation remained broadly contained despite food-price pressures linked to flood disruptions. Tight monetary policy played a central role in this outcome.

These achievements deserve acknowledgement. They have bought policymakers valuable time. However, the outlook for FY 2026 has weakened moderately. Devastating floods during FY 2025 have affected agriculture and infrastructure so that reconstruction needs will strain the budgets. Global financial conditions remain uncertain. Export capacity has not expanded sufficiently to anchor future external balances.

Ministry of Economic Affairs data for the current fiscal year reveal continuing dependence on foreign assistance. During July-November 2025, total foreign economic-assistance disbursements amounted to about $3.03 billion. Commitments under the FY 2026 budget framework are estimated at nearly $19.9 billion. The composition of this financing remains heavily tilted toward loans rather than grants.

This structure highlights rising debt sensitivity. Bilateral and multilateral loan disbursements during July-November 2025 reached approximately $2.52 billion. Grant disbursements remained limited at roughly $0.51 billion. Stability achieved through borrowing deepens future liabilities. It narrows fiscal space. It increases rollover and currency-exposure risks.

Multilateral lenders remain the main financiers of Pakistan’s development agenda. Asian Development Bank commitments under the FY 2026 framework exceed $1.9 billion. These funds are directed toward flood resilience, power-sector reform and road infrastructure. The World Bank Group through the IBRD and the IDA channels collectively accounts for more than $3 billion in planned assistance. Priority sectors include water supply, education, health and revenue-mobilisation reforms.

This financing supports important projects. Yet it also reveals institutional weakness. Development expenditure continues to rely on external concessional resources because domestic revenues are inadequate. Pakistan’s tax-to-GDP ratio remains structurally low. The state collects too little and spends too much on debt servicing. The gap is filled through borrowing.

China is the largest single bilateral creditor. Commitments exceed $4.1 billion, including SAFE deposits and project loans. The proceeds support strategic initiatives such as the Chashma Nuclear Power Plant and satellite-development programmes. European partners—France, Germany, Denmark—are maintaining targeted project financing. These portfolios focus on energy transition and urban infrastructure. However, cumulative European commitments remain modest relative to Pakistan’s needs.

The oil-financing facilities of the Islamic Development Bank and the Saudi Fund for Development further illustrate vulnerability. The IsDB short-term oil facility accounts for $700 million. A Saudi oil facility contributes an additional $500 million in budgetary support. These instruments ease immediate energy-import payments but underscore the economy’s continuing exposure to external shocks in the energy sector.

Monetary policy has been the main anchor of stabilisation. Demand compression and exchange-rate flexibility allowed under the IMF programme helped rebuild foreign-exchange reserves. The SBP’s cautious stance contained inflationary pressures.

Financial profitability of banks improved through investment in government securities. As in the past, private-sector credit growth remained subdued. The banking sector thus mirrors the broader economy. It is profitable. It is liquid. Yet it is disconnected from real economic expansion as heavy reliance on government borrowing crowds out productive lending. Stability at the cost of private investment undermines long-term growth.

The energy sector remains one of the most consequential elements of the adjustment programme. Timely increases in power and gas tariffs helped slow the accumulation of circular debt. Transmission and distribution investments financed through multilateral loans aim to reduce technical losses. However, high capacity payments and governance flaws in distribution companies continue to generate quasi-fiscal losses. Without deep reform, tariff hikes alone offer only temporary relief.

External-sector reporting also reflects coordination gaps. Valuation and timing differences persist between SBP payments records and Pakistan Bureau of Statistics customs data. Lack of integrated trade intelligence weakens export strategy. Policy remains reactive. Institutions operate in silos.

The structural reform agenda under the IMF programme remains uneven. Progress is visible in reporting and compliance. It is limited in restructuring. State-owned enterprises continue to drain resources. Trade policy remains inconsistent. Tariff distortions discourage competitiveness. The RSF has introduced a welcome focus on climate resilience. However, adaptation financing must translate into better water management and climate-smart agriculture to improve productivity.

The overarching challenge is clear. Pakistan must transition from externally financed stability to internally generated growth. Loans must give way to earnings. Deficits must be funded through broader taxation rather than bank borrowing. Imports must fall because exports rise, not because growth is suppressed.

The way forward requires decisive policy change. The government must prioritise broadening the tax base over raising tax rates. Compliance must improve through fair enforcement. Provincial revenue frameworks must be strengthened so that the federation does not bear disproportionate burdens. Public investment must be rationalised toward projects with measurable economic returns rather than politically appealing schemes.

Export expansion and value addition must become core policy priorities. A stable and competitive exchange-rate regime should support manufacturing and agriculture. Logistics and skills reforms are essential to integrate Pakistan into regional value chains. The energy sector must move toward cost-reflective pricing combined with targeted subsidies for vulnerable households. Governance of distribution companies must be professionalised through private participation and performance-based management contracts.

Agricultural productivity gaps must be closed through water efficiency and technology adoption. Human-capital investment must rise. Remittances should supplement growth, not substitute for it.

Pakistan has a narrow but real opportunity window in 2026. The IMF-supported stability has restored credibility.

External financing data highlight both support and vulnerability. Sustainable growth lies in converting discipline into productivity, reform into resilience and assistance into autonomy. Only then can Pakistan move toward a stable, competitive and debt-sustainable economy.

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

Abdul Rauf Shakoori is a corporate lawyer based in the USA