VII. Economic Challenges in Pakistan — Pakistan Affairs

📂 START HERE — How This Page Is Organised

No child pages here — read the sections below in order, then the solved past papers at the end.

📝 Actual CSS questions from this chapter

CSS 2019 Q4 — Major economic challenges and recommendations
CSS 2021 Q7 — Political stability and economic prosperity
CSS 2022 Q6 — Grants, aid and loans in the last ten years
CSS 2025 Q6 — Impact of Bhutto's nationalisation policy
CSS 2026 Q6 — Economic challenges and the IMF's conditions

📺 Directly Relevant YouTube Lecture Sources

Federal Budget 2026–27 — Analysis — Federal Budget 2026–27: revenue, debt servicing, deficits
Current Tenure — Coalition Governments (2022–Present) — current tenure: IMF programme and stabilisation
Zulfikar Ali Bhutto Era (1971–1977) — Bhutto era: background for the 2025 nationalisation question
7th National Finance Commission Award — Salient Features and Analysis — 7th NFC Award and the federal fiscal squeeze

📌 Topic Contents

📖 Structural Issues
📖 External Vulnerabilities
📖 Structural/Sectoral Weaknesses
📖 Governance & Institutional
📖 Recent Context (as of 2025-26)
📖 Key Challenges with Latest Data (Economic Survey 2025-26)
📖 The IMF Programme (CSS 2026, Q6)
📖 Current arrangement
📖 Main conditions (structural benchmarks)
📖 How conditions shape stabilisation (positive)
📖 Costs and criticism
📖 Long-term sustainability requires going beyond the IMF
📖 Answer structure (20 marks)
📖 Exam angle
📖 ✍️ Model Answer (20 marks)
📖 Outline

20-mark answer check: identify the exact command word, establish a clear position, support each argument with a dated example and evaluate competing evidence.

Structural Issues

Low tax-to-GDP ratio (~9-10%) — narrow tax base, heavy reliance on indirect taxes
Chronic twin deficits: fiscal deficit + current account deficit
Circular debt in energy sector (unpaid subsidies/losses cascading through supply chain)
Low savings & investment rates (~13-15% of GDP) vs regional peers

External Vulnerabilities

Heavy reliance on imports (oil, machinery) → import-driven current account pressure
Repeated IMF programs (23+ since 1958) — "stop-go" cycles, structural reforms rarely completed
External debt servicing consumes large share of budget
Low FDI compared to regional competitors (Bangladesh, Vietnam)

Structural/Sectoral Weaknesses

Narrow export base — dominated by low-value-added textiles
Agriculture stagnant productivity despite large labour share
Energy sector: circular debt, high line losses, expensive capacity payments (esp. IPPs)
Large informal economy — reduces tax collection & productivity gains

Governance & Institutional

SOEs (PIA, Pakistan Steel, Railways) — chronic losses draining budget
Political instability disrupts long-term economic planning
Corruption & weak regulatory institutions

Recent Context (as of 2025-26)

IMF Extended Fund Facility ongoing — conditions include tax reform, energy pricing, SOE privatization
Inflation moderated from 2023 peak (~38%) but structural issues remain
Focus areas: export diversification, documentation of economy, privatization

Key Challenges with Latest Data (Economic Survey 2025-26)

Slow growth: 3.7% in FY26 — far below the 6–7% needed to absorb about 2 million new job seekers a year.
Debt burden: debt servicing ~Rs8.05 trillion in the FY27 budget, over 40% of total outlay.
Narrow tax base: tax-to-GDP around 10%; FY26 FBR collection ~Rs12.98 trillion against a Rs14.13 trillion target.
Weak exports: food exports fell ~$1.5 billion in FY26; exports remain textiles-dominated.
Energy sector: circular debt, capacity payments, high tariffs undermining industry.
Rising poverty and weak human capital: poverty 28.9%; education spending ~0.8% of GDP.
External shocks: 2025 floods, US tariffs, oil price spike from the 2026 Middle East conflict.
Security and political uncertainty: TTP violence, Afghan border conflict, political polarisation deterring investment.

The IMF Programme (CSS 2026, Q6)

Current arrangement

Extended Fund Facility (EFF): $7 billion, 37 months — staff-level agreement July 2024, approved September 2024; Pakistan's 25th IMF programme since 1958.
Resilience and Sustainability Facility (RSF): ~$1.4 billion for climate resilience (2025).
Third EFF review — staff-level agreement 27 March 2026; ~ $1 billion (EFF) +$ 210 million (RSF) approved in May 2026, bringing total disbursements to about $4.5 billion. Pakistan met 14 of 17 end-December 2025 targets.
Next review mission (covering January–June 2026 performance) begins 23 September 2026.

Main conditions (structural benchmarks)

Fiscal: primary surplus of 1.6% of GDP in FY26 and 2% in FY27; no unbudgeted spending or new tax amnesties.
Revenue: broaden the base — provinces legislated agricultural income tax (2024–25); taxing retailers, real estate; reduce exemptions.
Energy: cost-recovery tariffs, timely price adjustments, circular-debt ceilings, renegotiated IPP contracts.
Monetary and exchange rate: SBP independence, market-determined exchange rate, positive real interest rates.
SOE reform: privatisation and governance reform of loss-making enterprises (PIA and power distribution companies).
Governance: anti-corruption measures, publication of a governance diagnostic, transparency in public procurement.
Social protection: protect and expand BISP.

How conditions shape stabilisation (positive)

Fiscal deficit cut to 0.7% of GDP in FY26; primary surplus maintained.
Inflation down from the ~38% peak (May 2023) to single digits.
SBP reserves at a record ~$21.4 billion (September 2026); current account near balance.
Credit rating upgrades and restored access to international markets; IMF approval unlocks financing from the World Bank, ADB and bilateral partners.

Costs and criticism

Growth sacrificed for stability; high energy prices hurt industry and households.
Regressive burden: salaried class and indirect taxes carry the load, while powerful sectors (real estate, retail, agriculture) have resisted.
Social costs: poverty rose to 28.9%; education and development spending squeezed.
Stop-go cycle: 25 programmes show that stabilisation rarely turns into lasting structural reform once pressure eases.
Sovereignty concerns: budgets effectively negotiated with the IMF.

Long-term sustainability requires going beyond the IMF

Home-grown reform ownership, not reform only to unlock tranches.
Export-led growth: IT, agriculture value chains, minerals; lower cost of doing business.
Tax reform that broadens the base rather than raising rates on existing taxpayers.
Energy transition toward cheaper local and renewable sources.
Human capital investment and population management.
Political stability and policy continuity (a Charter of Economy).

Answer structure (20 marks)

Introduction — stabilisation achieved, sustainability not yet.
Key economic challenges (6–8, with latest data).
Pakistan and the IMF — history and the current EFF.
Key conditions.
How they shape stabilisation (positives with data).
Limits and costs.
Path to long-term sustainability.
Conclusion — the IMF can stabilise, only domestic reform can transform.

Exam angle

Always connect: structural cause → symptom → policy response (IMF conditions) → outcome.
Revise this page together with XXVI (Economic Conditions / latest survey).

✍️ Model Answer (20 marks)

Question (CSS 2026): Undertake a concise assessment of the key economic challenges currently confronting Pakistan. Illustrate how the IMF's conditions can shape the country's path towards economic stabilisation and long-term financial sustainability.

Outline

Introduction
Key economic challenges
Pakistan and the IMF: the current programme
Main IMF conditions
How the conditions shape stabilisation
Costs and limits
Path to long-term sustainability
Conclusion

1. Introduction

Pakistan's economy has moved from the edge of default in 2023 to a fragile stability in 2026. GDP grew 3.7% in FY26, the fiscal deficit fell to 0.7% of GDP, and reserves reached a record of about $21.4 billion by September 2026. Much of this was achieved under the discipline of the IMF's$ 7 billion Extended Fund Facility, Pakistan's 25th programme since 1958. The IMF can stabilise the economy; but only domestic reform can make that stability last.

2. Key Economic Challenges

Slow growth: 3.7% is far below the 6–7% needed to absorb about 2 million new job seekers a year.
Debt burden: debt servicing of about Rs8.05 trillion in the FY27 budget, over 40% of total spending.
Narrow tax base: a tax-to-GDP ratio of about 10%; FY26 FBR collection of Rs12.98 trillion missed the Rs14.13 trillion target.
Weak and narrow exports: dominated by textiles; food exports fell about $1.5 billion in FY26.
Energy sector: circular debt, capacity payments and some of the region's highest tariffs.
Human development: poverty rose to 28.9%; education spending is only about 0.8% of GDP.
External shocks: the 2025 floods, US tariffs, and the oil price spike from the 2026 Iran war.
Political and security uncertainty deterring investment.

3. Pakistan and the IMF: The Current Programme

Extended Fund Facility: $7 billion over 37 months, agreed in July 2024 and approved in September 2024.
Resilience and Sustainability Facility: about $1.4 billion for climate resilience (2025).
Third review: staff-level agreement on 27 March 2026; about $1 billion (EFF) and$ 210 million (RSF) approved in May 2026, bringing total disbursements to about $4.5 billion. Pakistan met 14 of 17 end-December 2025 targets.
The next review mission begins on 23 September 2026.

4. Main IMF Conditions

Fiscal: a primary surplus of 1.6% of GDP in FY26 and 2% in FY27; no unbudgeted spending or tax amnesties.
Revenue: broaden the base; the provinces legislated agricultural income tax; tax retailers and real estate; remove exemptions.
Energy: cost-recovery tariffs, timely price adjustments, ceilings on circular debt, renegotiated power contracts.
Monetary and exchange rate: State Bank independence, a market-determined exchange rate, positive real interest rates.
State-owned enterprises: privatisation and governance reform.
Governance: anti-corruption measures and transparency.
Social protection: protect and expand BISP.

5. How the Conditions Shape Stabilisation

Fiscal discipline: the deficit fell from 2.6% to 0.7% of GDP, and a primary surplus was maintained.
Inflation control: from a peak of about 38% (May 2023) to single digits.
External stability: a current account near balance and record reserves.
Confidence: credit rating upgrades and access to financing from the World Bank, ADB and bilateral partners, all of which depend on IMF approval.
Structural signals: agricultural income tax laws, power contract renegotiations and privatisation have begun.

6. Costs and Limits

Growth sacrificed: high interest rates and taxes suppressed investment.
Regressive burden: salaried workers and indirect taxes carry most of the load, while powerful sectors resist taxation.
Social cost: rising poverty and cuts to development and education spending.
High energy prices hurt households and industry.
The stop-go cycle: 25 programmes show that reforms tend to stall once the pressure eases.
Sovereignty concerns: budgets are effectively negotiated with the IMF.

7. Path to Long-Term Sustainability

Ownership: implement reforms because they are necessary, not only to unlock tranches.
Tax reform: broaden the base (retail, real estate, agriculture) rather than raising rates on existing taxpayers.
Export-led growth: IT, value-added agriculture, minerals and manufacturing; a lower cost of doing business.
Energy transition: cheaper local and renewable sources; reduce losses and theft.
SOE reform: complete privatisation or professional management.
Human capital: invest in education, health and population management.
Political stability: a Charter of Economy to ensure policy continuity across governments.

8. Conclusion

Pakistan's economic crisis is not a lack of money but a lack of reform. The IMF programme has restored macroeconomic stability and given Pakistan breathing space, but stabilisation achieved through austerity will not last if the structural causes (a narrow tax base, an inefficient energy sector, weak exports and low investment in people) remain. The real test is whether Pakistan uses this window to build an economy that no longer needs a 26th programme.

📝 CSS Past Papers 2014–2026 — This Chapter (Solved)

📊

Asked so far: 5 subjective questions (2019, 2021, 2022, 2025, 2026). MCQs on economic facts, such as budgets, five-year plans, the IMF and GDP, are filed under XXVI. Economic Conditions, so revise both pages together.

Pattern: almost every paper asks about challenges and solutions. Always quote figures from the latest Economic Survey and the current IMF programme.

Part-II — Past Subjective Questions

1. CSS 2019 Q4 — What major economic challenges are being faced by Pakistan? What recommendations do you suggest to deal with these issues? (20)

Outline

Introduction
The boom-and-bust pattern
Major economic challenges
Recommendations
Conclusion

Answer

1. Introduction

Pakistan's economy has grown in short bursts that usually end in a balance-of-payments crisis and another IMF programme. The country has signed more than twenty such programmes since 1958.

2. The boom-and-bust pattern

Growth is driven by consumption and imports rather than by investment and exports. When foreign reserves run low, the government is forced to cut spending and raise interest rates, and growth collapses.
The 2018-19 current account crisis, which led to a six-billion-dollar IMF Extended Fund Facility in 2019, followed exactly this pattern.

3. Major economic challenges

Twin deficits. The government spends more than it earns, and the country imports far more than it exports.
A narrow tax base. Tax revenue is only about 10 per cent of GDP. Large parts of retail, agriculture and real estate pay little or no tax, and the burden falls on salaried people and on indirect taxes.
Growing debt. Both external and domestic debt have risen steadily, and interest payments are now the largest single item in the federal budget.
The energy sector. Circular debt, costly contracts with independent power producers and high transmission losses keep electricity expensive.
Loss-making state enterprises. PIA, Pakistan Steel Mills, Pakistan Railways and the power distribution companies drain public money every year.
Weak exports. Exports depend heavily on low-value textiles, and tariff policy has long discouraged exporters.
Low savings and investment. Investment is only around 15 per cent of GDP, well below that of fast-growing Asian economies, and foreign direct investment remains weak.
Inflation and currency depreciation erode living standards and business confidence.
Population growth of more than two per cent a year means the economy must create jobs for millions of new workers.
Governance and policy inconsistency make long-term planning difficult for investors.

4. Recommendations

The tax net should be widened through digitisation of the FBR and a real tax on agricultural income.
Growth should be led by exports, with greater focus on IT services, value-added textiles and the special economic zones.
The energy sector needs cheaper indigenous and renewable sources, renegotiated contracts and better bill recovery.
Loss-making state enterprises should be restructured or privatised.
Political parties should agree on a Charter of Economy so that core policies survive changes of government.
Investment in education, health and population planning would raise the productivity of the workforce.
Simpler regulations would improve the ease of doing business.

5. Conclusion

Pakistan's difficulties are structural, and short-term borrowing only postpones them. Lasting stability will come when the country taxes fairly, earns more from exports and spends its money on productive investment.

Full 20-mark answer: CSS 2019 — Pakistan Affairs Paper (Solved)

2. CSS 2021 Q7 — "Political stability is mandatory for economic prosperity in Pakistan." Elaborate. (20)

Outline

Introduction
Why stability matters for growth
Evidence from Pakistan's history
How instability damages the economy
The counter-argument
Way forward
Conclusion

Answer

1. Introduction

Investors, lenders and planners all need to know that the rules will not change overnight. Pakistan's experience shows that whenever its politics has been unsettled, its economy has stalled.

2. Why stability matters for growth

Acemoglu and Robinson argue in Why Nations Fail that stable and inclusive institutions are the foundation of lasting prosperity.
When policies are expected to continue, the risk premium on investment falls and businesses are willing to commit capital for the long term.

3. Evidence from Pakistan's history

In the 1990s four elected governments were dismissed before completing their terms. Growth was slow and debt piled up.
The long sit-in of 2014 delayed the Chinese President's visit, during which the CPEC agreements were to be signed.
The political crisis that followed the no-confidence vote of April 2022 coincided with a sharp fall in reserves, and by 2023 the country was close to default.

4. How instability damages the economy

Policies are reversed when governments change, as has happened with privatisation and power contracts.
Foreign investment falls, the stock market weakens and the rupee loses value.
IMF programmes are delayed, and credit-rating agencies downgrade the country.
Governments facing uncertain futures prefer popular short-term measures over painful reforms.
Skilled young people lose hope and leave the country.

5. The counter-argument

Some point out that growth was high under Ayub Khan in the 1960s, Zia-ul-Haq in the 1980s and Pervez Musharraf in the 2000s.
Yet each of these periods depended heavily on foreign aid tied to Cold War or War on Terror alliances. The growth did not last, and the regimes lacked the legitimacy needed for deeper reform.

6. Way forward

The major parties should agree on a Charter of Economy covering taxation, energy and IMF commitments.
Electoral mandates should be respected and governments allowed to complete their terms.
Independent institutions such as the State Bank (under the SBP Act 2022) and the Election Commission should be protected.
Long-term plans such as Uraan Pakistan should be treated as national rather than party programmes.

7. Conclusion

Political stability is not a result of prosperity but one of its conditions. Until the economy is kept out of day-to-day political battles, Pakistan will continue to lose the gains of each growth cycle.

Full 20-mark answer: CSS 2021 — Pakistan Affairs Paper (Solved)

3. CSS 2022 Q6 — What is the volume of grants, aid and loans in Pakistan's economy in the last ten years to stimulate growth? Discuss. (20)

Outline

Introduction
The scale of external inflows (2012 to 2022)
Main sources of loans
The place of grants
How the money was used
Impact on growth
Problems
Way forward
Conclusion

Answer

1. Introduction

Over the decade from 2012 to 2022, Pakistan's external debt and liabilities roughly doubled, from about 60 billion dollars to about 130 billion dollars. Growth over the same period averaged only around four per cent a year.

2. The scale of external inflows

Most of this money came as loans rather than grants, and a growing share was used simply to repay earlier debt.

3. Main sources of loans

The IMF provided an Extended Fund Facility of 6.6 billion dollars in 2013 and another of 6 billion dollars in 2019.
The World Bank and the Asian Development Bank gave both budget-support and project loans.
China lent heavily, including the debt component of CPEC, which is estimated at 25 to 30 billion dollars.
Saudi Arabia, the UAE and Qatar placed deposits with the State Bank and provided oil on deferred payment.
The government also raised money through Eurobonds, Sukuk and commercial bank loans.
The United States reimbursed costs through the Coalition Support Fund and gave assistance under the Kerry-Lugar-Berman Act, although these flows shrank after 2015.

4. The place of grants

Grants formed only a small part of total inflows. They came mainly from USAID, the British development agency and, after the 2022 floods, from international donors. Even most of the roughly 10 billion dollars pledged at the Geneva conference in 2023 was in the form of loans.

5. How the money was used

The largest share went to budget support and to financing the balance-of-payments gap.
Some funds built power plants and roads, especially under CPEC.
A rising portion was used to roll over or repay old loans.

6. Impact on growth

External finance helped Pakistan avoid default several times and ended the load-shedding of the early 2010s.
However, much of it paid for consumption and imports rather than for building export capacity. Debt servicing now takes up so much of the budget that little is left for development.

7. Problems

Pakistan has fallen into a cycle of borrowing to repay earlier borrowing.
Loans come with conditions that limit policy choices.
The country depends on friendly states to roll over deposits each year.
Too little of the borrowed money has gone into productive investment.

8. Way forward

Pakistan should seek foreign direct investment rather than more debt.
It must increase exports and domestic savings.
Debt should be managed transparently, with full disclosure of terms.
New loans should be used only for projects that generate the income needed to repay them.

9. Conclusion

Aid and loans have bought Pakistan time, but they have not bought it growth. Sustainable development will come only from mobilising domestic resources and earning more abroad.

Full 20-mark answer: CSS 2022 — Pakistan Affairs Paper (Solved)

4. CSS 2025 Q6 — Critically evaluate the impact of Bhutto's nationalization policy on the economy of Pakistan. (20)

Outline

Introduction
Background
Phases of nationalisation
Positive effects
Negative effects
Critical evaluation
Reversal of the policy
Conclusion

Answer

1. Introduction

Zulfikar Ali Bhutto came to power in December 1971 promising "Islamic socialism" and roti, kapra aur makan. Between 1972 and 1976 his government took over major industries, banks, insurance companies and even small agro-processing units in an effort to break the concentration of wealth.

2. Background

In 1968 Dr Mahbub-ul-Haq claimed that 22 families controlled about two-thirds of industrial assets, 80 per cent of banking and 97 per cent of insurance. Public anger at this inequality helped the PPP win the 1970 election.

3. Phases of nationalisation

In January 1972 the Economic Reforms Order placed 31 units in ten basic industries under state management.
Life insurance was nationalised in March 1972, and the vegetable ghee industry followed in 1973.
Banks were nationalised in January 1974.
In July 1976 about 2,000 cotton-ginning, rice-husking and flour mills were taken over, a step that hit small businessmen hard.

4. Positive effects

The economic power of the big business families was broken.
Nationalised banks opened rural branches and extended credit to farmers and small borrowers.
Workers gained better wages and job security through new labour laws.
Heavy industry received public investment, most notably through Pakistan Steel Mills, founded in 1973.

5. Negative effects

Private investment fell sharply, and many industrialists moved their capital and businesses abroad.
Growth in large-scale manufacturing dropped from 8 to 10 per cent a year in the 1960s to around 3 to 4 per cent in the 1970s.
State enterprises became overstaffed and were run by political appointees.
Bank lending was often decided on political grounds.
Several loss-making state enterprises created in this period still burden the budget today.

6. Critical evaluation

It would be unfair to blame every economic problem of the 1970s on nationalisation. The 1973 oil price shock, the floods of 1973 and 1976 and the loss of the East Pakistan market also hurt the economy.
Nevertheless, the policy was carried out in haste and without the managerial capacity to run such a large public sector. Extending it to small mills in 1976 destroyed the business confidence on which investment depends.

7. Reversal of the policy

General Zia returned many agro-processing units to their owners.
From 1991 onwards successive governments privatised banks such as MCB, UBL and HBL, as well as PTCL.

8. Conclusion

Bhutto's nationalisation achieved its social aim of reducing the power of a few families, but at a heavy economic cost that Pakistan is still paying. The lesson is that the state should regulate markets and redistribute wealth through taxation and welfare, rather than try to run businesses itself.

Full 20-mark answer: CSS 2025 — Pakistan Affairs Paper (Solved)

5. CSS 2026 Q6 — Undertake a concise assessment of the key economic challenges currently confronting Pakistan. Illustrate how IMF's conditions can shape the country's path towards economic stabilization and long-term financial sustainability. (20)

Outline

Introduction
The present economic position
Key economic challenges
The main IMF conditions
How the conditions support stabilisation
How they can support long-term sustainability
Criticism of the IMF approach
Way forward
Conclusion

Answer

1. Introduction

In 2023 Pakistan came close to defaulting on its external debt. It was pulled back by a three-billion-dollar Stand-By Arrangement in 2023 and then a 37-month Extended Fund Facility of about seven billion dollars, approved in September 2024 and later supplemented by a Resilience and Sustainability Facility.
By FY26 growth had recovered to 3.7 per cent, the fiscal deficit had fallen to 0.7 per cent of GDP and foreign reserves stood at about 21 billion dollars.

2. The present economic position

According to the Economic Survey 2025-26, GDP is about 452 billion dollars and per capita income is 1,901 dollars.
Inflation has fallen to around 6 per cent from a peak of nearly 38 per cent in 2023, and remittances have reached a record of more than 30 billion dollars.
Poverty, however, has risen to about 28.9 per cent.

3. Key economic challenges

Tax revenue is only about 10 per cent of GDP.
Debt servicing is expected to cost about 8 trillion rupees in FY27, more than 40 per cent of the federal budget.
Investment is low, exports are narrow, and the energy sector is weighed down by circular debt.
State enterprises continue to lose money.
The population is growing at 2.55 per cent a year, and floods and heatwaves regularly damage the economy.
External risks, such as oil price spikes and foreign tariffs, along with frequent policy changes at home, add to the uncertainty.

4. The main IMF conditions

The government must run a primary surplus, with a target of 2 per cent of GDP for FY27.
The tax base must be widened, including provincial taxes on agricultural income under a National Fiscal Pact.
Electricity and gas tariffs must reflect costs, and power purchase contracts must be renegotiated.
The exchange rate must be market-determined, and the State Bank must target inflation.
State enterprises must be reformed or privatised.
Spending on the Benazir Income Support Programme must be protected.
The government must address weaknesses identified in a governance and corruption diagnostic, and the climate facility requires climate-resilient public investment.

5. How the conditions support stabilisation

Fiscal discipline has reduced the deficit and restored a primary surplus.
A market-based exchange rate ended the shortage of dollars and helped rebuild reserves.
Tight monetary policy brought inflation down, which later allowed the State Bank to cut interest rates.
IMF approval unlocked financing from the World Bank, the Asian Development Bank, China and the Gulf states, and credit-rating agencies upgraded Pakistan.

6. How they can support long-term sustainability

A wider tax base would create space for development spending.
Reforming state enterprises would stop a steady drain on public money.
Cheaper and more reliable energy would make industry more competitive.
Because the commitments are made to the IMF, they provide continuity even when governments change.

7. Criticism of the IMF approach

Higher taxes and energy prices have squeezed households and contributed to rising poverty.
Tight policies slow growth, so the economy stabilises without expanding.
Pakistan has signed more than twenty programmes, and reforms have often been reversed once a programme ends.
New taxes tend to fall on salaried people and documented businesses rather than on untaxed sectors.
Many reforms are seen as imposed from outside, which weakens national ownership.

8. Way forward

Pakistan should own its reform agenda through a cross-party Charter of Economy.
Retail, real estate and agriculture must be brought into the tax net.
Exports should be expanded in IT, minerals, agriculture and value-added textiles, with the SIFC helping investors.
The country should move towards cheaper indigenous and renewable energy.
Education and health budgets should be protected from cuts.
Debt should be refinanced on longer terms to reduce dependence on yearly rollovers.

9. Conclusion

IMF conditions have helped restore stability, and if they are followed consistently they can lay the groundwork for long-term financial health. In the end, however, the IMF can only set targets. It is Pakistan that must carry out the reforms and shift its economy from borrowing and consumption towards investment, exports and human development.

Full 20-mark answer: CSS 2026 — Pakistan Affairs Paper (Solved)