Pakistan's Boom-and-Bust Cycles

Why Pakistan's economy has repeatedly swung between growth spurts and balance-of-payments crises, and its long reliance on IMF programmes.

Pakistan, with around 240 million people, is one of the world’s most populous countries. Its economy has repeatedly followed a pattern: periods of growth fuelled by consumption and imports, followed by crises when foreign currency runs out.

The cycle

Growth speeds up, often driven by consumption, government spending and imports.
Imports grow faster than exports, and the current account deficit widens.
Foreign exchange reserves fall.
A currency crisis looms, and the country turns to the International Monetary Fund for a loan.
The IMF programme requires tighter policies, slowing growth.
Once stability returns, the cycle begins again.

Pakistan has entered into over 20 IMF arrangements since the 1950s, among the most of any country.

Deeper causes

Low tax revenue: Pakistan collects tax equal to only around 10 percent of GDP, among the lowest in the world, as many incomes, especially in agriculture and trade, go largely untaxed.
Weak exports: exports are concentrated in textiles and have not grown fast enough to pay for imports.
Energy sector debts: the power sector has accumulated large unpaid debts, known as circular debt.
State-owned enterprises that lose money.
Political instability and security challenges.

Recent crisis

In 2022 and 2023, Pakistan faced a severe crisis, worsened by devastating floods in 2022. Reserves fell to cover only a few weeks of imports, inflation rose above 35 percent at its peak in 2023, and the rupee fell sharply. An IMF agreement in mid-2023 helped avert default, followed by a larger programme in 2024.

The import squeeze

When Pakistan's reserves ran very low in early 2023, banks restricted letters of credit for importers. Shipping containers of goods, including raw materials for factories, were held at ports. Factories slowed production, and shortages appeared. Without enough dollars, even essential imports became hard to pay for.

Thinking IMF loans cause the crises

IMF programmes come with difficult conditions, but they are usually requested when a crisis is already under way. The deeper causes lie in low tax revenue, weak exports and fiscal imbalances.

Key takeaways

Pakistan's economy has repeatedly swung between growth spurts and currency crises.
It has entered over 20 IMF arrangements since the 1950s.
Low tax revenue, weak exports and energy sector debts are deep causes.
A severe 2022 to 2023 crisis, worsened by floods, was eased by IMF programmes.