If 2025 has revealed anything, it is the alarming disconnect between Pakistan’s economic reality and the self-congratulatory narratives pushed by its policymakers.
The year has passed without a single meaningful breakthrough—no new productive units, no serious investment in balancing, modernization or replacement (BMR), and no expansion in industrial capacity. The economy is drifting, yet those responsible for steering it remain disturbingly complacent.
The import bill tells a story of its own. A 15 percent surge in imports exposes how deeply dependent the country has become on everything from basic raw materials to high-end consumer goods. Simultaneously, a 5 percent decline in exports reflects both declining competitiveness and an industrial sector gasping for breath. This is not a temporary imbalance; it is a structural failure in the making, now accelerating under an administration that mistakes cosmetic measures for policy.
Instead of responding with urgency, Pakistan’s economic managers have taken refuge in denial. They continue celebrating short-term dollar inflows as if these lifelines represent real progress. Their strategy—if it can be called one—rests entirely on IMF bailouts, emergency loans from friendly countries, and repeated rollovers of past obligations. This is not economic management; it is firefighting with borrowed water.
Worst of all, there is no sign of strategic thinking. No national plan for industrial revival, no push for technological upgrading, no attempt to diversify exports, and no investment in productivity. The economy is being held together by ad hoc decisions, political gimmicks, and a misplaced belief that stabilization alone can substitute for growth.
Pakistan is not suffering from a lack of options; it is suffering from a lack of seriousness. Nations facing crises reform their energy sectors, modernize their agriculture, incentivize manufacturing, and push for export-oriented growth. Pakistan, by contrast, has spent 2025 celebrating marginal improvements while ignoring the collapse taking place beneath the surface.
With rising imports, shrinking exports, stagnant industries and policymakers lost in complacency, the direction is painfully clear, Pakistan economy is plunging deeper into debt trap.
According to Taurus Securities, the IMF Executive Board has approved Pakistan’s 2nd EFF Review along with the 1st Review of the RSF, allowing the disbursement of US$1.2 billion (EFF & RSF combined) to Pakistan. The IMF noted Pakistan’s strong program implementation as well as the continuing stability and improved financing & external conditions, despite the impact of the devastating monsoon floods.
Nevertheless, the IMF has trimmed its real GDP growth forecast for FY26 to 3.2% from 3.6% earlier. However, average NCPI expectations have been revised downwards from 7.7% (as of May 2025) to 6.3%, with the period-end forecast being revised upwards to 8.9%. Consequently, the brokerage house concludes that the inflation outlook as per the IMF reflects ’status quo’ for the remainder of FY26. The latter is also supported by lower expectations for growth and lower increase in private sector credit during FY26.
Meanwhile, fiscal projections flag continuing consolidation with revenue as % of GDP being revised upwards while expenditure as a % of GDP remains more or less the same. Further, overall fiscal balance forecast has been revised downwards to 4% of GDP (despite 40bps reduction in GDP growth forecast). And finally, Primary Balance remains unchanged at a surplus of 1.6% of GDP.
On the external front, forecast for CAD has been revised upwards to 0.6% of GDP (0.4% of GDP previously). Moreover, official FX reserves are estimated to rise to US$17.8 billion by FY26 end. Projections for import cover have remained almost unchanged. The brokerage house awaits the release of the Staff Report for enhanced clarity.
Banking Sector
Pakistan’s banking sector has been pushed into a deeply unproductive corner, where commercial banks function less like engines of economic development and more like cash dispensers for an ever-hungry government. What should have been a competitive, growth-supporting financial ecosystem has been quietly dismantled. And at the center of this damaging transformation lies not just fiscal mismanagement, but the startling apathy—and in some cases complicity—of the State Bank of Pakistan (SBP).
The core issue is now undeniable – lending to the government has overwhelmed the banking sector’s balance sheets. Banks earn safe, guaranteed profits from risk-free sovereign papers, while the real economy is left gasping for credit. Yet the SBP, whose mandate is to ensure financial stability and foster economic development, has remained a silent spectator. Instead of confronting the distortions created by excessive government borrowing, it has allowed — even facilitated — the deepening of these imbalances.
The crowding out of the private sector is no longer a theoretical concern; it is a lived economic reality. Businesses, especially SMEs and exporters, face prohibitive borrowing costs and chronic credit shortages. Investment in new productive facilities is minimal. Technology upgrades have stalled. Capacity expansion is rare. And much-needed backward and forward linkages in manufacturing remain undeveloped. Still, the SBP appears content with issuing routine circulars and standard statements, without addressing the structural decay happening under its watch.
What makes the SBP’s passivity more troubling is that it fully understands the consequences. A private sector denied access to credit cannot generate exportable surplus. Without exportable surplus, Pakistan remains chronically short of foreign exchange, trapped in a perpetual cycle of IMF dependence. The central bank’s inability—or unwillingness—to push banks toward productive lending has thus directly contributed to Pakistan’s weak external position. It is a failure of policy vision, regulatory enforcement, and institutional courage.
The impact on employment is equally devastating. When industries cannot expand, modernize, or innovate, they do not hire. Pakistan’s young population, already facing shrinking opportunities, bears the brunt of a financial sector that refuses to fund growth. Yet, instead of using moral suasion, targeted refinancing, or regulatory incentives to correct the credit bias, the SBP has allowed commercial banks to operate purely as collectors of government interest.
Successive governments may be blamed for unrestrained fiscal deficits, but the SBP’s inability to uphold the broader national interest is just as culpable. A central bank that prioritizes government convenience over economic vitality undermines the very purpose of financial regulation.
If Pakistan is to escape stagnation, the SBP must reclaim its role as a proactive regulator—not a passive bookkeeper of government borrowing. It must push banks back toward their core function: financing productive enterprise, supporting exporters, and enabling job creation. Until then, commercial banks will remain lenders to the state rather than partners in national development—a failure engineered by both fiscal indiscipline and regulatory apathy.