Beyond the Bailout: Dismantling the Machinery of Pakistan’s Debt Trap

Pakistan has returned to the International Monetary Fund twenty-three times. Twenty-three. At some point, the conversation must shift from “how do we secure the next program” to “why does the machinery keep breaking down?”

The answer is not technical. It is not about capacity. It is about choice—specifically, the choice to maintain an economic system that rewards extraction over production, protects incumbents over entrants, and treats governance as a series of ad hoc deals rather than enforceable rules.

The Illusion of Planning

Every few years, a new committee is formed. A blueprint is drafted. Exports will be doubled. Investment will flood in. Growth will accelerate. Then nothing happens, because aspirations are not policies.

The real question is simpler: can a business start, scale, and operate without seeking permission at every turn? In Pakistan, the answer is no. The economy runs on discretion, not rules. Tariffs are negotiated. Tax exemptions are lobbied for. Energy prices are political decisions dressed up as technical adjustments.

This is not an economy designed for growth. It is designed for control. And control, by definition, limits entry. When entry is limited, competition dies. When competition dies, so does productivity.

The Energy Albatross

If there is a single sector that deserves to be called “ground zero” of Pakistan’s fiscal collapse, it is energy. The sector is fragmented across nearly two dozen entities, each with overlapping mandates and conflicting incentives. Prices are set not by cost recovery but by political calculus. The result is circular debt—a euphemism for a subsidy black hole that consumes billions annually and forces the government back to the IMF.

According to the World Bank’s Pakistan Development Update, the energy sector’s inefficiencies contribute significantly to the country’s fiscal imbalances. The problem is not technical complexity. It is governance failure. State-owned distribution companies operate as monopolies with no accountability for losses. Tariffs do not reflect costs. Political actors intervene when bills come due.

The solution is not another bailout. It is a shift to cost-reflective pricing, enforced through transparent contracts and independent regulation. This is not ideological. It is arithmetic. You cannot subsidize your way to solvency.

Taxation: From Predation to Participation

Pakistan’s tax system is broken by design. Rates are high for the few already in the net. Exemptions are widespread for those with influence. The result is a narrow base, crushing compliance costs for formal businesses, and a massive informal sector that operates entirely outside the tax system.

The Pakistan Institute of Development Economics (PIDE) Reform Agenda has consistently argued for what should be obvious: if you want more people to pay taxes, make it easier and cheaper to do so. Lower rates. Broaden the base. Remove exemptions. Digitize enforcement so that compliance becomes automatic, not adversarial.

Instead, the system does the opposite. It punishes formality and rewards informality. Businesses stay small to avoid detection. Transactions move to cash. The state responds by raising rates on those it can reach, which pushes more businesses underground.

This is not a growth strategy. It is a slow bleed.

What Growth Actually Requires

Growth is not engineered. It is not the output of a five-year plan or a committee report. Growth happens when firms can enter markets, compete on merit, and scale without bureaucratic gatekeeping.

The Asian Development Bank’s forecasts for Pakistan consistently note that structural constraints—particularly in trade policy, energy costs, and regulatory unpredictability—hold back potential. These are not external shocks. They are internal choices.

The state does not need to “create” growth. It needs to stop blocking it. That means shifting from a permission-based economy to a rules-based one. It means enforcing contracts rather than negotiating exemptions. It means allowing prices to signal costs rather than political preferences.

None of this is radical. It is what every functional economy does.

The Uncomfortable Truth

The IMF is not the problem. It is a symptom. The real problem is a political economy that depends on discretion, rewards rent-seeking, and treats public resources as bargaining chips.

Exiting the IMF permanently requires dismantling that machinery. It requires accepting that the state cannot subsidize, protect, and plan its way to prosperity. It requires shifting the source of economic dynamism from bureaucratic approval to market competition.

This is not a question of ideology. It is a question of survival. Pakistan can continue to seek programs every few years, each time promising reform and delivering adjustment. Or it can confront the fact that the system itself is the obstacle.

The choice, as always, remains political. But the consequences are already visible in the numbers: twenty-three programs and counting. At some point, pattern becomes policy. And the policy, whether deliberate or not, is dependence.

The alternative is not complicated. It is just uncomfortable. Remove the discretion. Enforce the rules. Let competition do its work. Growth will follow. But first, the machinery that prevents it must be dismantled.

The author is an independent economic analyst.