IN our article of Jan 28, 2026, we had highlighted the importance of fixing energy and the tax regime, both major constraints on our growth potential, for Pakistan to break its dependence on the IMF. Now we turn to other parts of the economy obstructing progress on the same goal.
A structural issue responsible for perpetuating Pakistan’s dependence on the IMF is its failure to control expenditure. Spending routinely outpaces revenues not because the state invests productively but because it lacks discipline over what it creates and consumes. At both federal and provincial levels, expenditures have spiralled via salary increases far exceeding inflation for the civil, judicial and military bureaucracies alongside expanding vehicle fleets, luxury housing, plush offices, overseas junkets and discretionary budgets, often without mandates, sunset clauses or performance tests.
The federal and provincial governments are huge employment bureaus. Even after the 18th Amendment, Islamabad has retained over 40 divisions and 400 attached departments, with a combined employee strength of 1.2 million. Moreover, creating new departments, authorities and special units, with full secretariats and perks, has become too easy; trimming by almost two-thirds is needed, alongside an immediate hiring freeze. Bureaucratic and political resistance preserve positions of authority.
SOEs are another fiscal sinkhole. Accumulated losses have crossed Rs6 trillion, growing by nearly a trillion annually, despite repeated bailouts through grants and equity injections. Most can’t be privatised, either because the purpose for their establishment has become redundant or they’re not commercially viable. They must be liquidated. Continuing to prop them up is a direct subsidy to irrelevancy and inefficiency financed through debt.
PSDP compounds the problem. Projects are rushed for political visibility, cost-benefit analysis is perfunctory, feasibility is weak and future operating costs ignored. The result is half-finished projects, mounting liabilities and financial gaps filled through debt or inflation. We must impose a hard brake on new PSDP starts, complete only high-return projects, write off sunk costs on low priority projects and redirect spending towards the economy’s ‘software’, i.e., education, basic health, courts, regulation, enforcement and trade facilitation.
The perks system lies at the heart of the country’s dysfunction.
Trade policy is the silent enabler of the crisis, and sustains IMF dependence. Pakistan remains poorly integrated into global value chains; it’s viewed as a peripheral supplier rather than a reliable, scalable partner. We safeguard and sustain inefficient constituencies of incumbents and entrenched special interests behind tariffs and non-tariff barriers — SROs, subsidised inputs, guaranteed returns, discretionary walls and bailouts. Exporters bear this cost through expensive inputs, an overvalued exchange rate, delayed refunds and policy uncertainty, leading to a narrow export base and chronic foreign exchange shortages. This anti-export bias functions as a subsidy to rent-seekers financed through IMF borrowing.
Export-led growth does not emerge by declaration. It requires simplified tariffs, elimination of discretion, competitive exchange rate and a genuine zero-rated regime with automatic refunds. Competition must replace lobbying. Exiting IMF dependence also requires forsaking the comfort of a closed, managed economy and creating opportunities for growth by embracing open, competitive markets. Protection and controls, which also facilitate cartel formation, have not produced national champions. They have cemented inefficiency, rewarded lobbying, made businesses habituated to the pursuit of protection rather than developing their capacity to compete, resulting in the misallocation of capital.
It is competition and not protection that is the only reliable disciplining device for firms, regulators and policymakers. Productivity growth is undermined by insulating inefficient producers while imposing heavy taxes on technology-enabling inputs. In contrast, open markets and low taxation of technological instruments enhance productivity, efficiency, facilitate scale and mitigate the structural distortions that trigger balance-of-payments crises.
A central lesson is that the government must exit price-setting altogether. Fixing prices administratively replaces information with discretion, resulting in shortages, misallocations and rent-seeking. Prices are signals. Suppressing them simply delays costs, which reappear as inflation, debt or IMF programmes. If entry remains blocked, even these reforms will fail. Pakistan’s most powerful growth killer is the gatekeeper state. Licences, NOCs, inspections and permissions administered by over 100 regulatory agencies create a toll economy where access matters more than productivity.
A genuine regulatory guillotine is one of the fastest, lowest-cost ways to reduce cost of doing business and raise growth. Pakistan doesn’t lack entrepreneurs; it lacks firms that are allowed to become large, productive, and export-oriented. The central aim of economic policy must, therefore, be to promote acceleration of investment and enable firms to grow, list and integrate with global markets. Listed companies matter. They bring transparency, governance, long-term capital and productivity spillovers that informal or protected firms cannot. Growth driven by scale, formality, and contract certainty is the only durable path to stability. This is why judicial reform is macroeconomic reform. Contracts that take decades to enforce repel investment regardless of vision statements. Predictable, time-bound commercial justice is indispensable to investment.
The perks system lies at the heart of our dysfunction. Incentives shift from performance to rent extraction when compensation is delivered through houses, plots, cars and protocol rather than transparent pay. Bureaucrats stop optimising the system and start optimising access to these privileges. Capital gets locked in prime land and elite enclaves instead of circulating through markets.
Finally, credibility requires rules. Pakistan’s stop-go cycles stem from discretion masquerading as flexibility as seen in defend-the-rupee episodes, off-budget guarantees and abrupt reversals. A credible exit requires binding fiscal and monetary rules, transparent escape clauses and the discipline to let prices work. It’s not the IMF that is the cause of Pakistan’s problems but the auditor that arrives after the damage. Exiting the IMF is not an act of defiance or nationalism; it is an act of competence. Until Pakistan stops confusing aspirations with instruments, plans with incentives, and rhetoric with reform, it will keep announcing exits — and signing the next programme.
Nadeem ul Haque is former VC PIDE and deputy chair of the Planning Commission. He is currently director at the think tank Socioeconomic Insights and Analytics. Shahid Kardar is a former governor of the State Bank of Pakistan.
Published in Dawn, February 11th, 2026
