Road to exiting IMF
Nadeem ul Haque | Shahid Kardar
Published January 28, 2026
DAWN
EVERY few months, Pakistani officialdom and its associated stakeholders return to a familiar, comforting refrain: how Pakistan must ‘exit the IMF’. The vocabulary is predictable and well-rehearsed: exports, productivity, human capital, technology, governance, national coordination. These concepts are presented as panaceas, as if merely invoking them charts a path to freedom from the Fund. What is almost always missing is the road to get there. The discussion rarely addresses concrete policy actions, operational instruments and institutional changes needed to achieve the objective. Wishes are communicated as targets, outcomes are mistaken for reforms, and reform itself is reduced to rhetoric.
Most ‘exit plans’ suffer from a basic flaw which confuses aspirations with instruments. Saying exports must rise is not a policy. Declaring that human capital must improve is not reform. Calling for better coordination or implementation is not an economic strategy. These are desired results, not mechanisms. The real question is far simpler and far more uncomfortable: what specific changes will alter behaviour tomorrow morning?
This confusion is not accidental. Pakistan does not return to the IMF because it lacks ideas or plans. It returns because the design of its economic system systematically produces balance-of-payments crises. IMF dependence is not a technical failure but the predictable outcome of a political economy that rewards rent-seeking, blocks entry, protects incumbents, misprices energy, taxes exports obliquely, and relies on administrative discretion instead of rules. You do not exit the IMF by declaring independence from it. You exit by dismantling the domestic machinery that repeatedly recreates the financing gaps which invite the Fund back into the parlour.
The IMF appears when three conditions converge. First, foreign exchange earnings fail to grow fast enough to close the external gap. Second, fiscal deficits are financed by printing money or unsustainable borrowing. Third, credibility collapses, shutting the country out of global capital markets. Pakistan finds itself in this position repeatedly not because of bad luck or external shocks alone, but because an extractive state apparatus actively suppresses productivity and growth, particularly through trade, by distorting incentives. The result is a structurally weak economy that periodically runs out of foreign exchange and credibility.
Most ‘exit plans’ suffer from a basic flaw which confuses aspirations with instruments.
The starting point, therefore, is to abandon the illusion of planning.
For decades, Pakistan has treated growth as something that can be engineered through plans, projects, committees and conferences. Strategies are announced, PSDPs approved, monuments built, and targets proclaimed. Meanwhile, the real economy is strangled by a predatory and unfair convoluted tax regime, discretionary permissions, distorted prices, and regulatory sludge, which is manifested in primitive, excessive, opaque regulations applied unevenly, reflecting a deep distrust of markets and an exaggerated belief in the state’s omnipotence.
Growth does not emerge from better plans. It occurs when firms can enter, scale, export, hire, and invest without begging for permissions — within a competitive, predictable and rule-based environment. That is where IMF dependence is born, and that is where it must be defeated.
Reform must begin with energy — electricity and gas — because this is where every IMF programme eventually unravels. Pakistan’s energy crisis today is not a capacity problem. It is a failure of policy, pricing and governance. Consumers and taxpayers are punished for government inefficiencies through unreliable and unpredictable supply and pricing of energy, steadily eroding state credibility. The energy sector is neither competitive nor realistically priced. It is governed by a fragmented institutional structure involving nearly two dozen entities operating without integrated coordination.
Policy incoherence (a mix of guaranteed returns, illogical subsidies, and politicised operational decisions) along with weak management across the supply chain disfigures the tariff structure and shields inefficiency. Distribution companies continue to flounder without accountability for losses, theft, or recoveries. The consequences are entirely predictable: distorted and mispriced consumption, corrupted investment signals, rapid off-grid migration through falling solar costs, and a permanent circular debt that becomes a quasi-fiscal deficit. This eventually resurfaces as inflation, borrowing, or IMF conditionality.
The solution is neither more subsidies nor ad hoc bailouts. It is a rules-based pricing system: transparent, cost-reflective tariffs under a competitive framework, automatic adjustment mechanisms, and enforceable governance contracts that hold utilities accountable. The poor should be protected through direct, targeted cash transfers, not by penalising commercial and industrial activity through pricing distortions that bankrupt the entire system.
Next comes taxation. The structure needs to be fixed, not the rates. Pakistan’s tax system is broken by design. It is fragmented across multiple agencies and jurisdictions, riddled with inconsistent thresholds and legal interpretations, and undermined by weak trust.
The problem is not a shortage of tax policy papers; it is the distortionary structure created by exemptions, lack of equity, discretion and predatory enforcement. Tax authorities aggressively pursue those already in the net while tolerating habitual non-payers. The illusion that high rates, complexity, and coercion can force formalisation must be discarded. Decades of experience demonstrate the opposite. Punitive, tortuous and unpredictable tax regimes entangle the taxpayers’ navigation of a labyrinth of arbitrary changes in laws, rates and procedures, shrinking the formal sector, expanding informality, eroding compliance and discouraging investment.
A growth-oriented tax system must be simple, predictable, low-rate, and broad-based, treating all income streams uniformly. Its purpose should be to attract firms into formality, not to punish them for entering it. Broadening the base means freezing new exemptions, publishing the fiscal cost of existing ones, fully digitising enforcement, and taxing sectors that have permanently learned to live outside the net. Until the state actively penalises non-payment and taxes privilege instead of productivity, deficits will persist and borrowing will continue.
Pakistan must also accept that a large informal economy will persist during the transition. Formalisation follows growth; it does not precede it, making absorption feasible. Criminalising cash or banning transactions in the name of fighting ‘black money’ merely drives activity further underground and slows growth.
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.
EVERY few months, Pakistani officialdom and its associated stakeholders return to a familiar, comforting refrain: how Pakistan must ‘exit the IMF’. The vocabulary is predictable and well-rehearsed: exports, productivity, human capital, technology, governance, national coordination. These concepts are presented as panaceas, as if merely invoking them charts a path to freedom from the Fund. What is almost always missing is the road to get there. The discussion rarely addresses concrete policy actions, operational instruments and institutional changes needed to achieve the objective. Wishes are communicated as targets, outcomes are mistaken for reforms, and reform itself is reduced to rhetoric.
Most ‘exit plans’ suffer from a basic flaw which confuses aspirations with instruments. Saying exports must rise is not a policy. Declaring that human capital must improve is not reform. Calling for better coordination or implementation is not an economic strategy. These are desired results, not mechanisms. The real question is far simpler and far more uncomfortable: what specific changes will alter behaviour tomorrow morning?
This confusion is not accidental. Pakistan does not return to the IMF because it lacks ideas or plans. It returns because the design of its economic system systematically produces balance-of-payments crises. IMF dependence is not a technical failure but the predictable outcome of a political economy that rewards rent-seeking, blocks entry, protects incumbents, misprices energy, taxes exports obliquely, and relies on administrative discretion instead of rules. You do not exit the IMF by declaring independence from it. You exit by dismantling the domestic machinery that repeatedly recreates the financing gaps which invite the Fund back into the parlour.
The IMF appears when three conditions converge. First, foreign exchange earnings fail to grow fast enough to close the external gap. Second, fiscal deficits are financed by printing money or unsustainable borrowing. Third, credibility collapses, shutting the country out of global capital markets. Pakistan finds itself in this position repeatedly not because of bad luck or external shocks alone, but because an extractive state apparatus actively suppresses productivity and growth, particularly through trade, by distorting incentives. The result is a structurally weak economy that periodically runs out of foreign exchange and credibility.
Most ‘exit plans’ suffer from a basic flaw which confuses aspirations with instruments.
The starting point, therefore, is to abandon the illusion of planning.
For decades, Pakistan has treated growth as something that can be engineered through plans, projects, committees and conferences. Strategies are announced, PSDPs approved, monuments built, and targets proclaimed. Meanwhile, the real economy is strangled by a predatory and unfair convoluted tax regime, discretionary permissions, distorted prices, and regulatory sludge, which is manifested in primitive, excessive, opaque regulations applied unevenly, reflecting a deep distrust of markets and an exaggerated belief in the state’s omnipotence.
Growth does not emerge from better plans. It occurs when firms can enter, scale, export, hire, and invest without begging for permissions — within a competitive, predictable and rule-based environment. That is where IMF dependence is born, and that is where it must be defeated.
Reform must begin with energy — electricity and gas — because this is where every IMF programme eventually unravels. Pakistan’s energy crisis today is not a capacity problem. It is a failure of policy, pricing and governance. Consumers and taxpayers are punished for government inefficiencies through unreliable and unpredictable supply and pricing of energy, steadily eroding state credibility. The energy sector is neither competitive nor realistically priced. It is governed by a fragmented institutional structure involving nearly two dozen entities operating without integrated coordination.
Policy incoherence (a mix of guaranteed returns, illogical subsidies, and politicised operational decisions) along with weak management across the supply chain disfigures the tariff structure and shields inefficiency. Distribution companies continue to flounder without accountability for losses, theft, or recoveries. The consequences are entirely predictable: distorted and mispriced consumption, corrupted investment signals, rapid off-grid migration through falling solar costs, and a permanent circular debt that becomes a quasi-fiscal deficit. This eventually resurfaces as inflation, borrowing, or IMF conditionality.
The solution is neither more subsidies nor ad hoc bailouts. It is a rules-based pricing system: transparent, cost-reflective tariffs under a competitive framework, automatic adjustment mechanisms, and enforceable governance contracts that hold utilities accountable. The poor should be protected through direct, targeted cash transfers, not by penalising commercial and industrial activity through pricing distortions that bankrupt the entire system.
Next comes taxation. The structure needs to be fixed, not the rates. Pakistan’s tax system is broken by design. It is fragmented across multiple agencies and jurisdictions, riddled with inconsistent thresholds and legal interpretations, and undermined by weak trust.
The problem is not a shortage of tax policy papers; it is the distortionary structure created by exemptions, lack of equity, discretion and predatory enforcement. Tax authorities aggressively pursue those already in the net while tolerating habitual non-payers. The illusion that high rates, complexity, and coercion can force formalisation must be discarded. Decades of experience demonstrate the opposite. Punitive, tortuous and unpredictable tax regimes entangle the taxpayers’ navigation of a labyrinth of arbitrary changes in laws, rates and procedures, shrinking the formal sector, expanding informality, eroding compliance and discouraging investment.
A growth-oriented tax system must be simple, predictable, low-rate, and broad-based, treating all income streams uniformly. Its purpose should be to attract firms into formality, not to punish them for entering it. Broadening the base means freezing new exemptions, publishing the fiscal cost of existing ones, fully digitising enforcement, and taxing sectors that have permanently learned to live outside the net. Until the state actively penalises non-payment and taxes privilege instead of productivity, deficits will persist and borrowing will continue.
Pakistan must also accept that a large informal economy will persist during the transition. Formalisation follows growth; it does not precede it, making absorption feasible. Criminalising cash or banning transactions in the name of fighting ‘black money’ merely drives activity further underground and slows growth.
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.
Shahidi Kardar is a former governor of the State Bank of Pakistan.
Published in Dawn, January 28th, 2026
Published in Dawn, January 28th, 2026
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