In the last three years, Pakistan's economy has seen a significant metamorphosis, transitioning from near collapse in mid-2023 to a state of macroeconomic stability and incremental development by 2025. Supported by a $7 billion International Monetary Fund (IMF) bailout and a series of audacious internal reforms, the nation's leadership has effectively averted default, mitigated rampant inflation, and established the foundation for permanent recovery.

This resurgence occurs while some countries in South Asia contend with rising inflation, debt vulnerabilities, and disruptions to the global supply chain. The relative economic stability of Pakistan is hence of greater importance for regional financial stability and trust among investors in emerging economies.

In June 2023, Pakistan encountered one of Asia's most severe economic catastrophes. Inflation exceeded 30 percent, foreign reserves fell significantly, and the government's debt load consumed a substantial portion of its earnings. The economy was perilously near default, with inflation reaching almost 40 percent in May 2023.

IMF Bailout And Macroeconimic Stability

The tide begun to shift during the IMF's stabilization initiative. Economists see Pakistan’s situation as a quintessential example of the “stabilization versus growth dilemma,” wherein immediate austerity and stringent monetary policy are essential to reestablish equilibrium prior to achieving sustainable growth. By emphasizing macroeconomic stability rather than short-term growth, the government facilitated inflation reduction, fiscal consolidation, and ultimately, investor confidence, establishing the foundation for a true economic recovery.

As of early 2025, the IMF observed that "Pakistan has achieved considerable advancement in reinstating macroeconomic stability and restoring confidence despite a difficult global context." Due to judicious monetary and fiscal policies, inflation consistently decreased, reaching 1.5 percent in February 2025 and plummeting to 0.3 percent in April 2025, down from 17.3 percent in April 2024. The Ministry of Finance anticipates inflation to stabilize between 1 and 1.5 percent in March 2025, representing the lowest rate in nearly a decade.
The alleviation of inflation has begun to alleviate the stress on households and small enterprises, while genuine wage growth and employment generation continue to be inconsistent. The government's emphasis on targeted subsidies and digital cash transfers is crucial in safeguarding vulnerable communities.

Foreign exchange reserves, after being exhausted, recovered to $11 billion, offering 2.5 months of import coverage. The economy, currently valued at over $350 billion, has not only steadied but actually commenced growth once more.

The Pakistan Economic Survey 2024–2025 indicated that Pakistan's economy exhibited significant stabilization and recovery, with Real GDP increasing by 2.68 percent in FY2025 and inflation declining markedly to 0.3 percent in April 2025 from 17.3 percent the previous year. Fiscal indicators significantly improved as the nation achieved its inaugural quarterly surplus in 24 years, with the primary balance attaining a historic 3.0 percent of GDP, driven by a 36.7 percent increase in revenues and enhanced spending control. The industrial and business sectors propelled development, with the IT and telecom industries serving as significant contributors; ICT exports increased by 23.7 percent, and freelancers generated US$ 400 million in foreign money. The Survey observed enhancements in investment and savings ratios, increased provincial surpluses, and advancements in digital entrepreneurship, highlighting that Pakistan’s fundamentals of the economy are fortifying, inflationary pressures are diminishing, and fiscal discipline is facilitating sustained recovery.

The Pakistan Economic Survey 2024–2025 states, “Pakistan’s economy has entered a recovery phase supported by fiscal consolidation, disinflation, and enhanced investor sentiment.”

Consolidating Achievements: Financial Robustness and External Resilience

In addition to headline statistics, the durability of Pakistan's recovery may be comprehensively assessed by its external and fiscal measures, which demonstrate a consistent rectification of enduring imbalances. The most notable transformation transpired in the external sector, as Pakistan achieved an annual current account surplus of around US$ 2.1 billion (0.5 percent of GDP) in FY2024–25, overturning years of continuous deficits. The Ministry of Finance and recent IMF country evaluations indicate that this reversal was propelled by a combination of restrained imports, enhanced remittances, and an increase in services exports, notably in IT and telecommunications. Exports increased by around 7 percent, totaling over US$ 26.9 billion, while IT and software-related exports surged at double-digit rates. These developments bolster the assertion that Pakistan's digital economy and service-sector development are developing into new catalysts for external resilience.

Pakistan's public-debt profile has improved, with the average duration of domestic debt increasing from 2.9 to 3.5 years, therefore alleviating short-term rollover concerns and enhancing investor confidence. Additionally, the government attained a primary surplus of 3.0 percent of GDP in FY2025, the highest in decades, indicative of a significant increase in income collection coupled with expenditure moderation. These results validate the assertion that Pakistan’s revival is not only cyclical but rooted in systemic budgetary consolidation.

Remittance inflows have offered supplementary support. In early 2025, monthly remittances were between US$ 3.8 billion and US$ 4.0 billion, highlighting the persistent contribution of Pakistan's worldwide diaspora to the stabilization of external balances. The national savings rate increased to 14.1 percent of GDP, up from 12.6 percent the prior year, indicating enhanced domestic trust in the financial system and improved resource mobilization. These dynamics align with what economists refer to as the “balance-of-payments adjustment path,” wherein rigorous policy measures progressively supplant reliance on external bailouts with sustainable inflows from trade, remittances, and investment.

Fundamentally, these interconnected fiscal, monetary, and external enhancements indicate that Pakistan's economic resurgence is not merely a result of transient relief but rather a profound structural rebalancing, which, if maintained, could ultimately position the nation on a path toward self-sustaining growth and diminished susceptibility to recurring crises.

External Engagement and Strategic Alliances

A fundamental component of Pakistan's post-crisis recovery has been its revitalized economic diplomacy and engagement via the SIFC framework. The council has been instrumental in securing Gulf and Chinese investments in the sectors of mining, energy, and agriculture. From an institutional economics standpoint, the SIFC aims to address Pakistan's persistent policy fragmentation by establishing a cohesive and trustworthy platform for decision-making and investor collaboration. The council aims to connect civilian, military, and bureaucratic stakeholders to reduce transaction costs, improve policy predictability, and restore external trust, essential components for sustainable growth.

Pakistan has aggressively engaged in economic diplomacy under the Special Investment Facilitation Council (SIFC) to encourage foreign direct investment from the Gulf Cooperation Council (GCC) nations, China, and Central Asian economies. Primary focal points are mining, agriculture, energy transformation, and information technology. Numerous collaborative ventures have commenced with Saudi Arabia and the UAE, especially in mineral exploration and energy conservation, indicating increasing investor confidence in Pakistan's reform trajectory.

In June 2024, Pakistan and China consented to enhance collaboration in the mining, oil, and gas industries, with Beijing urging Chinese companies to engage in offshore drilling for oil and gas within Pakistani seas. This advancement signifies a new stage in the China-Pakistan Economic Corridor (CPEC), expanding its focus from infrastructure to natural development and industrial cooperation.

Concurrently, Pakistan’s stock market reflected global trends, achieving rises in tandem with significant markets such the U.S., France, and China during FY2025.

Challenges and Paths Ahead

Although Pakistan's macroeconomic stabilization is tangible and quantifiable, doubts persist over the extent of structural changes and the government's capacity to maintain austerity measures. Ambassador Aizaz Ahmad Chaudhry, a former foreign secretary and head of the Sanober Institute, remarked, “We have yet to observe any tangible measures that substantiate the government’s assertions of austerity.”

Enduring structural constraints, diminished productivity, and reliance on foreign inflows continue to pose substantial concerns. Nevertheless, the amalgamation of budgetary discipline, policy consistency, and strategic foreign alliances suggests that Pakistan's economy may be on the verge of transcending its historical pattern of crisis and recovery.

To advance, continuous reforms in the taxation system, energy pricing, and state-owned firms would be crucial for enhancing the recovery. Enhancing governance in accordance with the Public Financial Management Act and broadening the revenue base beyond indirect taxes will ascertain Pakistan's potential to convert short-term stability into long-term sustainability.

Conclusion

Pakistan's transition from imminent default in 2023 to stability in 2025 exemplifies a remarkable macroeconomic reversal in South Asia. In contrast to Sri Lanka, which is mired in post-default restructuring, and Bangladesh, which is experiencing export stagnation, Pakistan's synchronized budgetary discipline and IMF-supported reforms have started to produce concrete outcomes. With inflation at historic lows, fiscal surpluses materializing, and revitalized investor confidence, the nation is poised on the brink of a new economic resurgence.

(The author is a visiting faculty at the Department of Politics and International Relations, International Islamic University, Islamabad (IIUI). She holds an MS in Strategic Studies from Air University Islamabad. Views expressed are persona and not necessarily shared by editors of SAM. She can be reached at saranazeer2@gmail.com )