Pakistan's economy continues to defy predictions of a complete meltdown, navigating persistent crises through a complex web of international bailouts, strategic alliances, and short-term fixes. The nation grapples with a prolonged period of economic stress marked by weak growth, soaring inflation, and mounting debt, yet manages to stay afloat. This survival raises critical questions about its underlying resilience and the sustainability of its current path.
The Twin Pillars of Survival: IMF Bailouts and Chinese Lifelines
The primary buffer against economic collapse has been the consistent financial support from the International Monetary Fund (IMF). Pakistan has turned to the IMF 25 times since 1958, making it one of the Fund's most frequent borrowers. A recent crucial intervention came in the form of a 37-month, $7 billion programme initiated under Prime Minister Shehbaz Sharif. In November 2025, the IMF's executive board was expected to approve a $1.2 billion disbursement as part of this programme. Overall, Pakistan has received approximately $3.3 billion from the IMF since the previous year, funds critical for rebuilding foreign exchange reserves and financing imports.
Parallel to IMF support, China has emerged as an indispensable partner. Strategic reliance on Beijing has deepened substantially through the China-Pakistan Economic Corridor (CPEC). Commitments to CPEC 2.0 focus on industrialisation, special economic zones, and clean energy. Chinese loans and infrastructure investments provide immediate relief but have simultaneously increased Islamabad's financial dependence on Beijing, creating a long-term strategic debt trap.
Tactical Moves and Re-engagement with the West
Alongside Chinese support, Pakistan has actively sought to mend fences with the United States to diversify its economic backing. In a notable diplomatic outreach, both Army Chief General Asim Munir, considered the de facto power centre, and Prime Minister Shehbaz Sharif took steps to engage Washington. This included nominating former US President Donald Trump for the Nobel Peace Prize for his role in regional diplomacy, a claim New Delhi later rejected.
The efforts yielded some economic goodwill. The US announced a favourable trade tariff of 19% for Pakistan, notably lower than the 50% imposed on India and rates for other regional peers. Furthermore, Trump spoke of potential cooperation in developing Pakistan's "massive oil reserves." Finance Minister Muhammad Aurangzeb highlighted plans for an investor conference in Washington to attract American capital into energy, mining, and technology sectors, viewing exports as a key to breaking the country's boom-and-bust cycle.
Structural Weaknesses and the Crisis of Governance
Beneath the surface stabilisation, the IMF's own damning Governance and Corruption Diagnostic Assessment (GCDA) reveals the core obstacles to sustainable growth. The report, finalised in November 2025, identifies "state capture" and "elite privilege" as the drivers of systemic corruption. It describes a scenario where public policy is manipulated to benefit a narrow circle, with dysfunctional institutions failing to enforce the rule of law.
The report specifically raises transparency concerns over the Special Investment Facilitation Council (SIFC), a body created in June 2023 with both civilian and military leadership to promote investment. The IMF flagged the broad legal immunity granted to SIFC officials and its power to exempt projects from standard regulations, urging greater public accountability.
Echoing these findings, a 2021 UNDP report estimated that economic privileges granted to Pakistan's elite, including the military and politicians, cost roughly 6% of the country's GDP. Experts like Stefan Dercon from Oxford University and Ali Hasanain from LUMS stress that without dismantling these entrenched structures, meaningful economic reform is impossible.
Geopolitical Shocks and Regional Tensions
External regional dynamics are adding severe pressure. A major flashpoint is water security. Following a terror attack in Pahalgam, Jammu and Kashmir, India suspended the Indus Waters Treaty (IWT), a move Pakistan warned would be treated as an "act of war." With around 80% of Pakistani farms reliant on the Indus system, this poses an existential threat to agriculture and hydropower.
Compounding this, Afghanistan's Taliban government plans to build dams on upstream rivers that feed into Pakistan, potentially creating a "double blast" to water availability. Furthermore, military tensions with India, exemplified by Operation Sindoor in May 2025 and the resultant damage to Pakistani airbases, escalate defence spending, crowding out vital development expenditure and spooking investors.
Fragile Stability Without Prosperity
Despite signs of financial market confidence—such as credit rating upgrades and strong returns on dollar bonds—the World Bank warns that macroeconomic stabilisation is not translating into better living standards. Poverty is estimated to have risen to over 27% by 2023–24, with nearly half the population below the lower-middle-income poverty line. The Bank projects growth of only 3% to 3.4%, insufficient to absorb the 1.6 million new entrants into the labour market each year.
In conclusion, Pakistan's economy survives on a precarious combination of external loans, tactical monetary policy, and geopolitical maneuvering. However, without sustained political stability, deep structural reforms, and a decisive check on elite-driven corruption, this survival remains fragile. The nation risks remaining trapped in a perpetual cycle of crisis and rescue, where survival is guaranteed but broad-based prosperity remains elusive.
