The comfort trap

What happens after this IMF package? 

Every state makes a silent deal with its citizens: endure today, prosper tomorrow. Pakistan has been making that bargain for nearly 80 years. The tomorrow keeps moving. What changes is only the name of the lender, the size of the tranche, and the list of conditions that will, this time, finally be met. The IMF programme is not a rescue but evidence that the deal has never been honoured.

Let us be precise about what has actually been achieved. Inflation, which peaked at 38 percent in May 2023, fell sharply through 2024 and touched 0.3 percent last April, before reversing course and climbing back to 11.7 percent in May 2026. Foreign reserves, depleted to crisis lows three years ago, have recovered to $17 billion at the State Bank. The IMF programme is on track. Officials are pleased, and the relief is understandable. But there is a difference between a patient who has been stabilised and one who has been cured. Pakistan has been stabilised before, in 2001, in 2008, in 2013, in 2019. It has never quite managed the second part.

The number that reframes everything else is this: debt servicing consumed 89 percent of net federal revenue in FY2025. Not half. Not two-thirds. Eighty-nine percent, leaving 11 paise of every collected rupee for defence, pensions, development spending, education, health, and everything else the state is supposed to provide. This is not a country managing its finances under pressure. This is a country that has structurally lost the ability to govern itself, financing the present by consuming the future. Total public debt now stands at Rs 80.6 trillion, roughly 70 percent of GDP, and is still growing faster than the economy.

Against this backdrop, poverty data is not surprising but devastating. Independent estimates suggest that 105 million Pakistanis, roughly 44 percent of the population, now live below the poverty line. 27 million additional people have fallen into poverty since 2018-19. The Gini coefficient has risen to 45, the highest measured inequality in nearly three decades. These are not abstractions. They are families choosing between medicine and food, children pulled from school, entire communities contracting economically while the official narrative celebrates stabilisation.

What explains this gap between the macroeconomic story and the lived reality? The answer is structural, and it has been structural for 60 years. This is Pakistan’s 24th IMF programme. The previous 23 failed to produce lasting change, not because the diagnoses were wrong, but because the political will to act on them was always rationed, always deferred, always conditional on some future moment of sufficient courage that never quite arrived.

Pakistan has a tax capacity estimated by researchers at over 22 percent of GDP. Its actual tax-to-GDP ratio, even after genuine recent improvement, stands at 12.3 percent, the highest in 25 years, and still below the 25th percentile of comparable economies. The gap between what the country could collect and what it does collect is not a revenue problem. It is a political choice, repeated across every government, protecting the same exempted interests: large landowners, powerful retailers, the informal sector that every government promises to bring into the net and none actually does.

Aristotle argued that the purpose of a state is not merely to help its citizens survive, but to enable them to live well. By that standard, Pakistan still has a long way to go. A country cannot claim genuine economic sovereignty when its future remains heavily dependent on external financing and approval. Until Pakistan can chart its own economic course, improvements in reserves and inflation will remain signs of temporary relief rather than evidence of lasting prosperity and self-reliance.

Agriculture contributes nearly a quarter of GDP and employs 40 percent of the workforce. It contributes almost nothing to tax revenue. The World Bank estimates Pakistan could collect farm income taxes worth one percent of GDP, roughly Rs 1.2 trillion annually, if provincial governments applied rates comparable to other income earners. Instead, the tax burden falls overwhelmingly on salaried workers and documented businesses, who pay repeatedly while watching entire economic classes operate outside the system entirely. This is not reform. It is extraction dressed as fiscal policy.

The energy sector tells the same story in a different register. Circular debt in the power and gas sectors has reached Rs 4.7 trillion. Servicing it alone will cost the exchequer nearly Rs 937 billion annually through FY2028. Electricity tariffs have risen to among the highest in the region, punishing the very manufacturers and households the economy depends on, while the structural inefficiencies such as theft, technical losses, capacity payment obligations to IPPs remain largely intact. Meanwhile, a government that correctly identifies dependence on $15 billion in annual fuel imports as a strategic vulnerability has chosen to tax solar panels and electric vehicles. If that contradiction has an economic logic, it has not been publicly explained.

The asymmetry of sacrifice is what ultimately makes reform politically unsustainable. Citizens have absorbed higher utility bills, a wider GST, compressed wages, and a poverty rate that has risen 32 percent since 2018-19. The federal wage bill has grown in the same period. State-owned enterprises, power distribution companies, the steel mill and others continue to haemorrhage hundreds of billions annually, their reform perennially scheduled for next year. The state demands discipline from the documented, the salaried, and the poor while protecting the undocumented, the landed, and the connected. People notice. And when they notice, they stop believing that the programme is designed for them.

There is no publicly available national document that specifies when Pakistan intends to exit IMF dependence, what tax-to-GDP ratio it is targeting, or how the debt servicing burden will be reduced as a share of revenue. Citizens are asked to endure present pain for future gain, but the future remains unspecified. That omission is not administrative oversight. A destination creates accountability. Vagueness preserves the flexibility to defer, which in Pakistan’s political economy has always been exercised in favour of those with the least to lose.

Pakistan’s crisis is no longer a question of economic diagnosis. The diagnosis has been consistent for decades. The question is whether the political system possesses capacity and courage to act on what it already knows. Countries do not escape cycles of debt, poverty, and external dependence through better forecasts or larger rescue packages. They do so by confronting entrenched interests, distributing sacrifice more fairly, and defining a national economic purpose beyond the next IMF review. Pakistan has reached a point where the cost of postponing difficult decisions may exceed the cost of making them.

Aristotle argued that the purpose of a state is not merely to help its citizens survive, but to enable them to live well. By that standard, Pakistan still has a long way to go. A country cannot claim genuine economic sovereignty when its future remains heavily dependent on external financing and approval. Until Pakistan can chart its own economic course, improvements in reserves and inflation will remain signs of temporary relief rather than evidence of lasting prosperity and self-reliance.