Pakistan’s IMF Dilemma

Taalya Khan

International Monetary Fund Builiding | (Via: Creative Commons License)

Pakistan has once again turned to the International Monetary Fund (IMF) for financial relief, securing a $1.3 billion agreement in March 2025 to stabilize its fragile economy. While this latest bailout provides temporary breathing room, it also signals a troubling pattern: Pakistan has entered over 20 IMF programs since the 1950s. Despite these repeated interventions, the country continues to grapple with inflation, mounting debt, and a struggling currency. The question is no longer just why Pakistan keeps returning to the IMF, but what role the IMF, and by extension the United States, should play in this cycle.

The IMF's loans have often been lifelines, offering Pakistan time to manage balance-of-payments crises and maintain minimal economic stability. However, many of these programs have fallen short of their broader goals, either due to domestic political resistance or lack of sustained follow-through. Critics argue that the IMF’s rigid focus on fiscal austerity and structural adjustment has sometimes prioritized budgetary math over long-term development needs. Meanwhile, political instability in Pakistan has frequently disrupted the implementation of agreed-upon reforms, creating a cycle of dependency rather than sustainable progress. For instance, the IMF has expressed concern about political influence over civil service appointments, which undermines the institutional integrity needed to implement reforms effectively.

This recurring bailout pattern should concern the United States, the IMF’s largest financial backer. U.S. support for IMF initiatives is not simply a gesture of goodwill, it is a strategic investment. An economically stable Pakistan reduces the risk of regional instability and limits the influence of rival powers like China, which Pakistan heavily relies on. But when IMF programs repeatedly fail to produce meaningful reform, they raise questions about the return on that investment. Reports indicate that Pakistan's external debt obligations have surged to over $77 billion, and without significant reform, the risk of default remains high.

Understanding where the fault lies is crucial. While Pakistan’s leadership bears responsibility for inconsistent reform implementation, the IMF's one-size-fits-all approach may also be part of the problem. A 2021 IMF working paper found that overly standardized program designs can limit the effectiveness of reforms. Additionally, tight austerity measures can suppress growth and fuel social unrest, which in turn destabilizes reform efforts. Both sides share blame: Pakistan for its weak governance and fiscal mismanagement, and the IMF for not adequately adapting programs to the country’s political and economic realities.

Rather than continuing to fund short-term fixes, the U.S. should push for a shift in how IMF assistance is designed and evaluated. Programs should be tailored more closely to Pakistan’s specific challenges, with clearer benchmarks and accountability mechanisms. The U.S. can also support initiatives that promote economic resilience in Pakistan, such as investment in digital infrastructure, energy reform, and expansion of the tax base to boost domestic revenue generation. Prime Minister Shehbaz Sharif has recently emphasized the government’s intent to achieve long-term recovery under IMF-supported reforms, including a controversial but necessary expansion of agricultural income taxes.

Ultimately, Pakistan’s long-term economic stability serves U.S. interests in global security and development. But that stability won’t come from repeated bailouts alone. While tailored IMF programs may require greater initial U.S. engagement through diplomatic capital or technical support, they could ultimately reduce the frequency and scale of emergency bailouts. In the long run, a more stable Pakistan would require less reactive aid and pose fewer security risks, making this a more cost-effective investment for U.S. foreign policy. By rethinking its approach to IMF engagement, the U.S. can help transform a pattern of dependency into a path toward sustainable growth—one that benefits both Pakistan and the international community.