In recent discussions about Pakistan’s economic challenges, Pakistan Tehreek-e-Insaf (PTI) has criticized the PDM government’s handling of the economy, particularly in its dealings with the IMF and the state of macroeconomic stability. While the PTI has raised several points, it is essential to examine these claims more thoroughly and consider the broader context of the country’s fiscal health and long-term reform strategies. However, the white paper released by the PTI lacked context. Moreover, the party had also ignored the international economic situation, the commodities super-cycle, the impact of the Russia-Ukraine war and catastrophic floods in the country.
One of PTI’s main claims is that the PDM government’s efforts at macroeconomic stabilization are not unique, pointing to the fact that all 14 IMF programs since 1988 have brought about short-term stabilization. The assumption here is that stabilization programs under the IMF simply offer temporary relief without structural changes. However, this view neglects the unique reforms currently being undertaken under the PDM government. Unlike previous cycles of fiscal austerity, which focused on short-term fixes, the current administration is attempting deeper, structural changes that address systemic inefficiencies in critical sectors. For example, energy sector restructuring, tax base expansion, and anti-corruption measures (such as digitizing the Federal Board of Revenue (FBR)) are among the key reforms. These efforts aim to break the “boom-bust” cycle that has plagued Pakistan’s economy for decades. Though the stabilization phase is necessary to create the foundation for sustainable growth, its long-term impact will take time to manifest. Dismissing these changes as “not unique” undermines the significance of these efforts in creating a more resilient economy.
The PTI also claims that the PDM government’s policies have driven 18 million Pakistanis into poverty due to regressive taxes and subsidy cuts. While this assertion holds some weight in light of the painful fiscal adjustments necessary to stabilize the economy, it simplifies the broader context. Subsidy reforms were a difficult but necessary step to address Pakistan’s mounting fiscal crisis. These adjustments, including raising energy prices, were a continuation of the policies initiated under PTI’s IMF deal. Moreover, the PDM administration has expanded social safety nets, notably increasing allocations for the Benazir Income Support Program (BISP) by 25% in FY24. Global shocks, such as post-pandemic inflation and the Ukraine war, have also played a substantial role in pushing millions into poverty. Therefore, blaming the PDM government alone for the rise in poverty ignores the complexity of the situation and the external pressures on the economy.
PTI’s claim that the economy is facing the “weakest growth on record,” with significant declines in industrial output, including a 1.03% contraction in the overall industry and a 3.8% drop in Large Scale Manufacturing (LSM), is an oversimplification. While the industrial sector has indeed struggled, much of this downturn can be attributed to global economic factors, such as record commodity prices, supply chain disruptions, and tight financial conditions that have disproportionately impacted emerging markets like Pakistan. The energy-intensive nature of Pakistan’s industrial sector further exacerbates these issues, as energy price adjustments under the IMF deal (initiated during PTI’s tenure) were necessary to curb circular debt, which had ballooned to Rs 2.6 trillion by 2022. To mitigate the damage and revive the industrial sector, the PDM government has introduced initiatives like the Special Investment Facilitation Council (SIFC), which aims to attract foreign partnerships in agriculture, mining, and IT. While recovery is slow, there are signs that progress is being made, and it’s unreasonable to solely blame the current government for the contraction in industrial output.
PTI mentioned in their White paper that the fiscal adjustments under the PDM government have relied heavily on taxing the poor, primarily through indirect taxes and electricity tariffs. While the tax-to-GDP ratio must increase to meet debt obligations and fund development, it is essential to examine the broader context of these adjustments. Indeed, indirect taxes are inherently regressive, but the PDM government has also introduced progressive measures to address inequality. For example, higher income tax rates have been imposed on the wealthiest individuals, and a windfall tax on banks has been implemented. Additionally, the PDM government has increased non-interest spending by 32%, focusing on key areas such as climate resilience, health, and education—sectors that PTI’s government underfunded. The rise in electricity tariffs, although painful, is necessary for cost recovery in the energy sector and to prevent a complete collapse of the power system.
PTI’s assertion that Rs 1.37 trillion was “wasted” on salaries, pensions, and “special initiatives” ignores the fact that these expenditures were necessary to retain talent and maintain public sector functions. Salary increases for civil servants and military personnel, which had stagnated for years, were crucial to prevent brain drain and ensure that the public sector remains functional. Moreover, pension reforms are currently underway to transition from a defined-benefit to a contributory system, which is expected to yield significant savings in the long term. The Punjab government’s “special initiatives,” which include infrastructure projects in underserved regions, are also an attempt to address historical inequities and promote regional development. PTI’s populist projects, such as the Naya Pakistan Housing scheme, lacked transparency and failed to provide lasting solutions to Pakistan’s housing crisis. Therefore, the claim of “wasteful expenditures” is misleading when viewed in the context of the broader reforms being pursued by the current government.
PTI argues that the decline in inflation reflects recessionary conditions rather than policy success. While it’s true that inflation has been driven down in recent months, this is due in part to a combination of tighter monetary policy, improved supply chains, and the stabilization of the rupee. Global factors, such as a decrease in oil prices, have also played a significant role in reducing inflation. Additionally, the State Bank’s autonomy, a reform initiated under previous governments, has helped stabilize the currency and control inflation. During PTI’s tenure (2018–2022), inflation soared to 13%, underscoring that price stability is a shared challenge for all governments, not a partisan failure. The current reduction in inflation, while a positive outcome, cannot be solely attributed to the PDM government’s policies, but it does highlight the effectiveness of broader structural reforms.
Finally, PTI claims that the PDM government has avoided necessary structural reforms, which risks a deeper recession. This claim is simply inaccurate. The PDM administration has implemented a number of crucial reforms, including:
- Energy sector reforms aimed at eliminating circular debt and rationalizing tariffs.
- Governance reforms such as the Pakistan Sovereign Wealth Fund Act, which aims to privatize loss-making state-owned enterprises (SOEs).
- Debt management strategies that have secured rollovers from bilateral partners and facilitated the IMF’s creation of a Climate Resilience Fund.
In contrast, PTI’s failure to implement similar reforms during its tenure contributed to the current fiscal crisis. Structural reforms are painful but necessary to address the underlying issues facing Pakistan’s economy, and the PDM government is addressing them head-on. Dismissing these efforts as mere repetitions of past cycles does a disservice to the transformative work being done to restructure Pakistan’s economic foundations.
