Can Pakistan finally break its bailout addiction, or is 2025 just another chapter in a recurring crisis?

Pakistan’s economy shows stabilization with $21B reserves and 6% inflation, but 3.2% growth barely exceeds population. Analyzing IMF programs, debt dynamics, and 2026 prospects for investors and policymakers.

The International Monetary Fund’s latest disbursement of $1.2 billion to Pakistan in December 2025 represents far more than a routine financial transaction. It’s a barometer of a nation caught between tentative stabilization and the persistent gravitational pull of economic inertia. Pakistan achieved a primary surplus of 1.3 percent of GDP in fiscal year 2025, in line with IMF targets, marking genuine fiscal progress. Yet beneath this achievement lies an uncomfortable truth: growth projections inch from 2.6% in FY25 to just 3.2% by FY26—barely matching population growth for a country of 240.5 million people.

This isn’t recovery. It’s containment.

For investors, policymakers, and Pakistan’s burgeoning middle class, 2025 presents a watershed moment. The immediate crisis of 2023—when foreign reserves plummeted to dangerously low levels and default fears paralyzed markets—has receded. But the challenge now is profoundly different: translating stabilization into sustained, inclusive growth that creates jobs and opportunities at scale.

The Stabilization Mirage: Real Progress or Borrowed Time?

Pakistan’s economic metrics tell a story of contradictions. On one hand, foreign exchange reserves surged to $21.1 billion as of December 2025, the highest level since March 2022. The rupee has shown unexpected resilience, with a 15.4 percent real effective appreciation in FY25 signaling currency stability after years of depreciation. The Pakistan Stock Exchange’s KSE-100 index has been nothing short of spectacular, climbing 54.70% year-over-year to reach 170,830 points, making it one of Asia’s strongest-performing equity markets.

These aren’t trivial achievements. Remittances hit a record $31.2 billion during the first ten months of fiscal year 2025, rising 30.9% year-over-year, with Saudi Arabia emerging as the top source. Inflation eased to 6.1% in November 2025 from a one-year high of 6.2% in October, a dramatic decline from the 23.4% average of the previous year.

“Pakistan’s economic outlook for 2025-2026 shows stabilization after crisis, with foreign reserves reaching $21 billion and inflation declining to 6.1%. However, GDP growth of 3.2% barely exceeds population growth, while 70.8% debt-to-GDP ratio and weak 0.5% FDI signal persistent challenges. The country must implement structural reforms to transition from containment to genuine inclusive growth.”

Yet dig deeper, and fragility persists. Foreign direct investment remains subdued at just 0.5-0.6% of GDP—levels that reflect continuing investor skepticism about Pakistan’s business environment. Unemployment is projected to fall only modestly from 8.3% to 7.5%, revealing weak job creation capacity. The country’s public debt reached Rs80.52 trillion (70.8% of GDP) by end-June 2025, up from Rs71.24 trillion the previous year—an increase of Rs9.3 trillion in a single year.

Consider what this means: Pakistan is running faster just to stay in place. Per capita income of $1,677 combined with 3.2% growth against 2% population growth translates to barely 1% improvement in living standards annually. For a nation where around 45% of the population lives below the poverty line according to a June 2025 World Bank report, this trajectory offers little hope.

The Debt Trap: Pakistan’s Fiscal Straitjacket

Here’s the brutal arithmetic constraining Pakistan’s future: nearly half of projected FY26 outlays—Rs7.5 trillion out of Rs17.4 trillion—is earmarked for debt servicing, equaling 77% of net federal revenues. This leaves Pakistan in what economists call “fiscal capture”—a situation where debt service crowds out virtually all productive spending.

Compare this globally. India, with debt around 82% of GDP, devotes 25-30% of central revenues to interest; Brazil spends roughly 20-25% with 88% debt-to-GDP. Pakistan’s debt servicing burden rivals Argentina’s, a country synonymous with fiscal distress. The difference? Pakistan borrows in currencies it cannot print, at interest rates it cannot control, making it acutely vulnerable to global financial shocks.

The IMF projects some relief, with public debt expected to decline from 70.8% to 60.8% of GDP by FY28 under continued fiscal consolidation. But this depends on maintaining primary surpluses of 2-2.5% of GDP annually—an extraordinary political challenge requiring sustained austerity in a democracy where 45% of citizens live in poverty.

What makes Pakistan’s debt particularly concerning isn’t just its size but its cost. Pakistan recorded a quarterly decline of Rs1.37 trillion in public debt in September 2025, the first since December 2019, achieved through early repayments of expensive debt. Yet the underlying structure remains precarious: domestic debt accounts for nearly half of GDP, keeping interest costs elevated, while external debt fell to 26% of GDP in FY25 from 31% two years earlier—progress, but from dangerously high levels.

The IMF Paradox: Lifeline or Dependency Trap?

Pakistan is operating under two simultaneous IMF programs: a 37-month Extended Fund Facility focused on economic stabilization and a Resilience and Sustainability Facility addressing climate vulnerabilities. Together, these have disbursed around $3.3 billion, with the latest reviews unlocking another $1.2 billion.

This marks Pakistan’s 25th IMF program since joining in 1950—a statistic that speaks volumes about the country’s inability to break its boom-bust cycle. Each program stabilizes the economy temporarily, but structural reforms remain incomplete. Tax collection as a percentage of GDP languishes around 10-11%, one of the lowest globally. Energy sector circular debt continues to accumulate despite repeated restructuring attempts. State-owned enterprises hemorrhage billions in losses annually.

The IMF’s 2025 Governance and Corruption Diagnostic Assessment found Pakistan’s economy loses an estimated 5-6.5% of GDP to corruption through “elite capture,” where influential groups shape policy for their benefit. This isn’t just morally troubling—it’s economically catastrophic. When market distortions and policy capture persist, private investment remains suppressed, foreign investors stay away, and productive capacity stagnates.

Yet paradoxically, the IMF program is working—at least on paper. The fiscal discipline it enforces has stabilized the currency, rebuilt reserves, and restored some international credibility. The question isn’t whether the IMF program is effective; it’s whether Pakistan can internalize these disciplines once external oversight ends.

2026 Prospects: Three Scenarios

Base Case: Muddle-Through Stabilization (60% probability)

Under current policies, Pakistan limps forward with 3-3.5% growth, just ahead of population expansion. The IMF program continues through 2027, providing external anchor and financing. The budget deficit narrows from -6.8% to -4.0% of GDP, with a primary surplus rising to 2.5%. Inflation stabilizes in the 5-7% range. Foreign reserves gradually build toward $25-28 billion by end-2026, providing 3.5-4 months of import cover.

This scenario delivers stability but not transformation. Living standards improve marginally. Job creation remains weak. Brain drain continues as educated Pakistanis seek opportunities abroad. The country avoids crisis but doesn’t achieve escape velocity. Think of it as economic purgatory—not hell, but certainly not heaven.

Upside Case: Reform Breakthrough (25% probability)

Imagine Pakistan actually implements long-delayed structural reforms. Tax-to-GDP ratio increases 2-3 percentage points through base broadening and digitalization. Major state-owned enterprises undergo genuine privatization, not cosmetic restructuring. Energy sector reforms sustainably reduce circular debt. The Special Investment Facilitation Council delivers $5-7 billion in Gulf investments, particularly in agriculture, IT, and mining.

In this scenario, growth accelerates to 4.5-5% by late 2026. Foreign direct investment doubles to 1-1.2% of GDP. The stock market rally continues, with the KSE-100 reaching 200,000 points. Pakistan begins attracting portfolio flows as international investors recognize improved fundamentals. Manufacturing competitiveness improves as energy costs decline.

What makes this plausible? Pakistan has demonstrated capacity for reform under pressure. The recent debt prepayment and fiscal consolidation show technical competence exists. The question is political will. Coalition governments prioritizing short-term survival over long-term transformation make sustained reform unlikely, but not impossible.

Downside Case: External Shock Relapse (15% probability)

Global commodity price spikes, particularly oil, blow out the current account. Regional geopolitical tensions escalate, disrupting trade and investor confidence. Political instability undermines policy continuity. Climate shocks—floods or droughts—require expensive emergency spending, blowing fiscal targets.

In this scenario, the current account deficit widens beyond 1% of GDP. Reserves deplete rapidly. The rupee comes under severe pressure. Inflation rebounds to double digits. The stock market corrects 30-40%. Pakistan returns to IMF mid-program for emergency adjustment, triggering another painful stabilization cycle.

This isn’t alarmist speculation—it’s Pakistan’s historical pattern. The country has faced similar setbacks repeatedly. What’s changed is improved reserve buffers and a more disciplined fiscal stance provide better shock absorption than in past cycles. But vulnerabilities remain acute.

The 2026 Inflection Point: What Must Happen

For Pakistan to transition from stabilization to genuine growth in 2026, five critical factors must align:

Revenue mobilization breakthroughs. Pakistan cannot sustain itself on 10-11% tax-to-GDP. Broadening the tax base, improving compliance, and rationalizing exemptions must deliver at least 1-1.5 percentage points of GDP in additional revenues. This isn’t technically difficult—digitalization and data integration can dramatically improve collection. It’s politically difficult because it requires taxing privileged sectors that have historically evaded their obligations.

Energy sector resolution. Circular debt and high electricity costs strangle industrial competitiveness. Pakistan’s electricity tariffs are among the highest in South Asia, making manufacturing globally uncompetitive. Addressing this requires politically painful decisions: rationalizing capacity payments to independent power producers, reducing transmission losses, improving recovery rates, and possibly renegotiating contracts. Without this, Pakistan cannot compete in global manufacturing.

Investment climate transformation. Why does Pakistan attract only 0.5% of GDP in FDI while Bangladesh draws 1.5% and Vietnam 6%? The answer: bureaucratic red tape, policy unpredictability, weak contract enforcement, and infrastructure deficits. Creating genuine one-stop investment facilitation, reducing regulatory approvals from months to weeks, and providing policy certainty would unlock billions in investment.

Export competitiveness revival. Pakistan’s exports have stagnated around $30-32 billion annually for years while regional peers have surged. Vietnam’s exports exceeded $370 billion in 2024; Bangladesh, despite political turmoil, maintains $45-50 billion. Pakistan needs export-led growth, requiring currency competitiveness, trade facilitation, value chain integration, and quality upgrading. The textile sector alone could double exports with better policy support.

Human capital investment. With 64% of the population under age 30, Pakistan possesses a demographic dividend that could propel growth—or become a demographic disaster if unmanaged. This requires massive investment in education, vocational training, and healthcare. Currently, education spending hovers around 2% of GDP, among the world’s lowest. Doubling this, with reforms ensuring quality, would transform long-term potential.

The Corruption Challenge: Elite Capture and Growth

The IMF’s corruption diagnostic reveals something Pakistan has long known but rarely confronted systematically: 5-6.5% of GDP is lost annually to corruption through elite capture. This isn’t petty bribery—it’s systemic policy distortion where powerful groups extract rents through protective regulations, subsidized inputs, tax exemptions, and procurement manipulation.

Consider the energy sector. Independent power producers negotiated extraordinarily favorable contracts in the 1990s and 2000s, guaranteeing dollar returns regardless of demand. These “capacity payments” now drain billions annually, creating circular debt that cascades through the economy. Why do these contracts persist? Because the beneficiaries have political influence to block reform.

Or examine tax exemptions. Pakistan grants hundreds of billions in tax expenditures annually—concessions to specific sectors, mostly benefiting large, connected businesses. A 2024 analysis found rationalizing just 30% of these exemptions could raise 1.5% of GDP in additional revenue. Yet reform stalls because beneficiaries lobby intensively against rationalization.

Breaking elite capture requires more than anti-corruption campaigns; it demands institutional reform: transparent procurement systems, merit-based bureaucracy, independent regulators, and genuine competition policy. The IMF diagnostic is helpful precisely because it shifts the conversation from moralistic hand-wringing to concrete institutional diagnostics.

Climate and Resilience: The Overlooked Variable

Here’s what makes Pakistan’s outlook uniquely precarious: climate vulnerability. The 2025 monsoon floods affected almost 7 million people and caused an estimated 0.6% of GDP in damage. This follows the catastrophic 2022 floods that inundated one-third of the country, causing $30 billion in damages.

Pakistan ranks among the world’s most climate-vulnerable nations despite contributing negligible global emissions. Rising temperatures threaten agricultural productivity in a country where agriculture employs 40% of the workforce. Glacier melt in the north creates water scarcity risks for irrigation-dependent farming. Extreme weather events—floods, droughts, heatwaves—are increasing in frequency and intensity.

The IMF’s Resilience and Sustainability Facility, providing $200 million in the latest disbursement, addresses this directly. But Pakistan needs far more comprehensive climate adaptation: improved water storage and irrigation systems, disaster-resilient infrastructure, agricultural diversification, and early warning systems. The World Bank estimates Pakistan requires $8-10 billion annually in climate adaptation investments through 2030.

Climate isn’t just an environmental issue—it’s a macroeconomic variable that can blow apart fiscal plans, devastate agricultural output, and trigger massive humanitarian emergencies requiring expensive relief. Any serious 2026 outlook must account for climate risk.

The Regional Context: Where Pakistan Stands

Pakistan doesn’t compete in isolation. Its South Asian neighbors offer instructive contrasts. India, despite comparable governance challenges, maintains 6-7% growth through a larger domestic market, more diversified economy, and deeper capital markets. Bangladesh, having graduated from least-developed status, sustains 5-6% growth driven by garment exports and steady policy continuity.

Even Sri Lanka, having endured debt default and political crisis in 2022, is stabilizing faster than expected. Its reform program, while painful, has restored some fiscal credibility and attracted investment interest.

Pakistan’s advantages are real: a large, young population; strategic location between South Asia, Central Asia, and the Middle East; reasonable infrastructure; and a substantial diaspora providing remittances and potential investment. Its disadvantages are equally real: political instability, security challenges, weak institutions, and policy inconsistency.

The critical question: can Pakistan leverage its advantages while addressing its weaknesses? Historical evidence suggests caution. Pakistan has squandered similar opportunities repeatedly. But circumstances have changed. The regional security environment has stabilized somewhat. China’s Belt and Road infrastructure provides connectivity options. Gulf states, particularly Saudi Arabia and UAE, show investment interest. Global firms seeking China+1 diversification could include Pakistan.

The window exists. Whether Pakistan can seize it depends on choices made in 2025-26.

What This Means for Stakeholders

For investors: Pakistan offers asymmetric opportunities with commensurate risks. The stock market’s 50%+ returns in 2025 reflect compressed valuations catching up to improved fundamentals. Banking, cement, energy, and consumer sectors show promise. But political and policy risks remain elevated. Diversification is essential. Consider Pakistan as a 5-10% portfolio allocation, not a concentrated bet.

For businesses: Pakistan’s 240 million person market and low per-capita income suggest massive consumption growth potential as incomes rise. But doing business requires patient capital, local partnerships, and willingness to navigate bureaucracy. Sectors with demonstrated success—textiles, IT services, food processing—offer proven paths. Emerging sectors like renewable energy, e-commerce, and fintech show potential but require regulatory navigation.

For policymakers: The 2025-26 period represents a narrow window for transformative reform. Stabilization creates space for politically difficult decisions—but that space won’t last forever. Prioritize revenue mobilization, energy sector restructuring, investment climate improvement, and export competitiveness. Most critically, build institutional capacity that outlasts any single government. Pakistan’s problem isn’t lack of plans—it’s lack of implementation and sustainability.

For citizens: Understand that stabilization isn’t prosperity. Demand more than fiscal metrics; demand job creation, service delivery, education access, and corruption accountability. Pakistan’s youth represent its greatest asset—but only if provided opportunities to contribute productively. Brain drain isn’t inevitable; it’s a policy choice reflecting failure to create domestic opportunity.

The Verdict: Cautious Optimism Grounded in Reality

So where does this leave Pakistan in 2025, looking toward 2026? In a place simultaneously better and more fragile than simple metrics suggest.

The stabilization is real. Pakistan has stepped back from the 2023 precipice. Reserves are rebuilding, inflation has declined, fiscal discipline has improved, and market confidence has partially returned. These aren’t trivial achievements—they required painful adjustment and represent genuine progress.

But stabilization isn’t transformation. Growth barely outpacing population expansion doesn’t create jobs at scale. Debt servicing consuming half the budget leaves no fiscal space for development. Foreign investment at 0.5% of GDP signals ongoing skepticism. Poverty affecting 45% of citizens demands far more aggressive inclusive growth.

The choice Pakistan faces isn’t between crisis and prosperity—it’s between muddling through and breakthrough. Muddling through means 3-3.5% growth indefinitely, stable but stagnant, avoiding disaster but not achieving potential. Breakthrough means accelerating to 5-6% sustained growth through genuine reform, creating millions of jobs, dramatically reducing poverty, and fulfilling Pakistan’s considerable potential.

Which path materializes depends on choices made in 2025-26. The external environment is reasonably favorable—global growth continues, commodity prices are manageable, Gulf investment interest exists, and IMF support provides buffer. The domestic environment is more uncertain—political stability is fragile, coalition dynamics complicate reform, and vested interests resist change.

History suggests skepticism. Pakistan has disappointed repeatedly, choosing expedience over reform, short-term survival over long-term strategy. But history also shows capacity for surprise. Pakistan has demonstrated resilience through extraordinary challenges. The question isn’t capability—it’s will.

For 2026, expect continued stabilization with modest growth acceleration if reforms progress. The base case of 3.2-3.5% growth, 5-6% inflation, $25-28 billion reserves, and gradual debt-to-GDP improvement is achievable and likely. Whether Pakistan breaks through to 5%+ sustained growth depends on policy courage—expanding the tax base, restructuring energy, improving business climate, and prioritizing exports.

The immediate crisis has passed. The chronic challenges remain. Pakistan’s economic outlook for 2025-26 is neither euphoric nor catastrophic—it’s cautiously optimistic, grounded in real progress but acutely aware of formidable obstacles ahead.

The country stands at a crossroads. One path leads to continued muddling—stable but mediocre, avoiding crisis but not achieving potential. The other leads to genuine transformation—politically difficult but economically transformative. Which path Pakistan takes will define not just 2026, but the trajectory of the next decade.

The data is mixed. The potential is real. The choice is Pakistan’s.

Sources Referenced:

• International Monetary Fund (IMF) reports and projections
• State Bank of Pakistan data
• World Bank Pakistan assessments
• Trading Economics statistical data
• Ministry of Finance debt sustainability analysis
• Pakistan Stock Exchange performance metrics
• Multiple authoritative economic research institutions

Arif Habib’s $482 million bet on PIA marks Pakistan’s first major privatization in two decades—but the real challenge begins now

When the hammer fell in Islamabad on December 23, Pakistan International Airlines—once the jewel of Asian aviation, now a cautionary tale written in red ink—found a buyer willing to wager nearly half a billion dollars that private enterprise can salvage what decades of government stewardship destroyed.

The Arif Habib-led consortium secured a 75% stake in PIA with a winning bid of Rs135 billion ($482 million) after a dramatic, televised auction that edged out Lucky Cement by just Rs1 billion in the final round. It represents Pakistan’s first significant state asset sale in nearly twenty years and fulfills a longstanding International Monetary Fund demand that has haunted successive governments.

But peel back the triumphant headlines and a more complex reality emerges—one that reveals as much about Pakistan’s deepening economic fragility as it does about one airline’s potential resurrection.

The Deal That Isn’t Quite What It Seems

Here’s what immediately raised eyebrows across Pakistan’s financial circles: the government receives only Rs10 billion in actual cash from this Rs135 billion transaction. The remaining 92.5% will be reinvested into the airline itself, prompting critics like economics professor Nasir Iqbal to denounce the arrangement as selling a national icon for scrap.

Yet this structure reveals strategic calculation rather than capitulation. What Islamabad accomplished before the auction matters more than the sale price. The government extracted Rs670 billion in accumulated debt from PIA’s books—legacy obligations that will now be serviced by Pakistani taxpayers at an estimated Rs35 billion annually for at least six more years.

Consider it financial triage. Pakistan removed the malignant tumor before transferring the patient. The Arif Habib consortium isn’t inheriting a clean slate, though. They’re taking on Rs180 billion in remaining liabilities, primarily short-term operational obligations rather than the suffocating long-term debt that rendered PIA commercially unviable.

The consortium’s bid valued PIA’s total equity at Rs180 billion ($643 million)—not unreasonable for an airline controlling coveted landing slots at Heathrow and 170 bilateral pair slots across global destinations. For context, that approximates mid-sized regional carriers’ market valuations, but PIA brings something competitors don’t: a recognized brand across South Asia and the Middle East, plus bilateral air service agreements with 97 countries that required decades to negotiate.

The Long Descent: From “Great People to Fly With” to Grounded Reality

After Air Marshals Nur Khan and Asghar Khan departed leadership—an era aviation historians regard as PIA’s golden age when the carrier ranked second globally—the airline entered a four-decade death spiral.

The statistics tell a brutal story. By 2023, PIA hemorrhaged over Rs75 billion in annual losses, with total liabilities ballooning to Rs825 billion. Operating cash flows turned negative year after year between 2017 and 2022, while finance costs exploded from Rs15 billion in 2017 to Rs50 billion in 2022.

But cold numbers don’t capture the full dysfunction. In September 2019, audits revealed PIA operated 46 completely empty flights between 2016 and 2017—ghost planes burning fuel and runway slots without a single passenger, causing $1.1 million in losses. Another 36 Hajj flights flew to Saudi Arabia entirely empty. When your national carrier operates phantom services, you’ve transcended simple mismanagement into institutional absurdity.

The final catastrophe arrived in May 2020 when PIA Flight 8303 crashed in Karachi, killing 97 people. Subsequent investigations uncovered that at least 262 of Pakistan’s 860 active pilots held dubious or fraudulent licenses—they hadn’t actually passed competency examinations. On June 30, 2020, the European Union Aviation Safety Agency banned PIA from European airspace, initially for six months, then indefinitely after determining the airline couldn’t adequately certify and oversee operators and aircraft.

For an airline dependent on lucrative London routes carrying Pakistani diaspora traffic, this proved catastrophic. Not until November 2024 did EASA lift the four-year ban—a development that transformed PIA from essentially unsellable to merely troubled, enabling this week’s auction.

Why the First Auction Failed: October’s Cautionary Tale

This week’s success arrives after October 2024’s spectacular failure—a collapse that nearly buried PIA privatization permanently.

Six groups initially prequalified: Airblue, Arif Habib Corporation, Air Arabia’s Fly Jinnah, Y.B. Holdings, Pak Ethanol, and Blue World City. But when bidding commenced October 31, only Blue World City—primarily a real estate developer—submitted an offer.

Their bid? Rs10 billion for a 60% stake—barely one-eighth of the government’s Rs85 billion minimum expectation.

Blue World City Chairman Saad Nazir stood firm despite government pressure to match the reserve price. The auction collapsed within hours, embarrassing Islamabad and reinforcing investor skepticism about Pakistan’s business environment.

Why did serious bidders withdraw? Three groups that declined participation cited identical concerns to Reuters: fundamental doubts about Pakistan’s ability to honor long-term agreements. Underpinning this skepticism was the government’s recent termination of power purchase contracts with five private companies and renegotiation of other sovereign-guaranteed agreements—moves that economist Sakib Sherani warned “raise the risk of investing and doing business in Pakistan, even in the presence of sovereign contracts.”

The failed October auction became a national humiliation, prompting government restructuring of the deal. They reduced the stake on offer from 60% to 51-100%, stripped out additional debt, and crucially, allowed EASA’s ban lift to materialize, fundamentally improving PIA’s commercial viability.

The IMF’s Long Shadow Over Pakistani Skies

Pakistan’s engagement with the International Monetary Fund in 2024 marks the country’s 25th program since 1958—a relationship that’s evolved from occasional assistance to chronic dependency. The current $7 billion Extended Fund Facility comes with familiar conditions: broaden the tax base to agriculture and retail sectors, eliminate energy subsidies, and privatize loss-making state-owned enterprises.

PIA’s sale represents the first meaningful test of whether this time differs from previous broken promises.

The stakes extend beyond aviation. Pakistan faces gross external financing needs of approximately $146 billion from FY2024 to FY2029, while foreign exchange reserves hover at $9.4 billion—roughly two months of import cover for the world’s fifth-most populous nation. That’s not a comfortable cushion; it’s a tightrope without a net.

PIA’s privatization sits at the intersection of dual imperatives: demonstrating to the IMF that Pakistan can follow through on structural reforms, and convincing investors the country offers opportunities beyond perpetual crisis management. Muhammad Ali, the Prime Minister’s privatization adviser, acknowledged that the sale serves as “a key test of Pakistan’s reform credibility with the IMF,” adding that failure to offload loss-making firms risks renewed pressure on public finances.

The IMF’s influence here cannot be overstated. Nearly 22% of Pakistan’s external debt is owed to China, mainly for China-Pakistan Economic Corridor projects. Another substantial portion flows to multilateral institutions led by the IMF. This isn’t partnership—it’s dependency that constrains sovereign policy choices.

Who Is Arif Habib, and Why Bet on Aviation’s Graveyard?

Arif Habib isn’t a household name internationally, but within Pakistan’s business establishment, he commands respect bordering on reverence.

As Chief Executive of Arif Habib Corporation Limited and Chairman of Fatima Fertilizer Company Limited, Aisha Steel Mills Limited, and Javedan Corporation Limited, Habib built a diversified empire spanning fertilizers, financial services, construction materials, industrial metals, dairy farming, and energy. He served as President and Chairman of the Karachi Stock Exchange six times and chaired the Central Depository Company of Pakistan—credentials suggesting patient capital and institutional thinking rather than speculative opportunism.

The consortium assembled for PIA brings complementary strengths: Fatima Fertilizer provides manufacturing scale and operations expertise, City Schools contributes service sector management, and Lake City Holdings adds real estate development experience. This isn’t a collection of financial engineers seeking quick returns; it’s industrial operators with long-term perspectives.

Yet aviation represents unfamiliar territory. Speaking to Arab News, Habib outlined ambitious expansion plans: increase the operational fleet from 18 aircraft currently to 38 in the first phase, then to 64 aircraft depending on traffic demand and market conditions. He emphasized that approximately Rs125 billion of the Rs135 billion bid will be directly reinvested into fleet modernization, maintenance upgrades, and service improvements over the next year.

The numbers sound impressive until context intrudes. PIA currently operates only 18 aircraft from a total fleet of 34—meaning 16 planes sit grounded due to maintenance issues, part shortages, or regulatory non-compliance. Expanding from 18 operational aircraft to 64 would require massive capital infusion, operational expertise the consortium may lack, and market conditions that remain uncertain at best.

Habib also expressed interest in acquiring the government’s retained 25% stake, stating the consortium has “90 days, and we are keen to move towards full ownership.” Whether the government agrees to sell that remaining quarter—which provides partial oversight and political cover—remains undetermined.

The Regional Aviation Chessboard

PIA’s decline unfolded against explosive growth across regional aviation. Gulf carriers—Emirates, Qatar Airways, Etihad—transformed into global powerhouses, leveraging geographic positioning to dominate connecting traffic between Europe, Asia, and beyond. Turkish Airlines pursued similar hub strategies with aggressive expansion. Even Air India, long dysfunctional itself, underwent privatization with stronger fundamentals and ambitious growth plans.

Pakistan’s aviation market shows promise despite current dysfunction. The domestic flights market is projected to grow at 7.05% annually through 2029, reaching a market volume of $8.04 billion. Pakistani air passenger traffic should climb to approximately 8.3 million by 2028, up from 7.6 million in 2023, marking modest but consistent growth.

The Middle East corridor remains vital—Gulf destinations account for the majority of PIA’s international traffic, driven by labor migration to UAE, Saudi Arabia, Qatar, and Kuwait. These routes generate steady revenue but face intense competition from Gulf carriers offering superior service at competitive prices.

Pakistani diaspora traffic to the UK, US, and Canada offers premium revenue opportunities if PIA can reclaim lost routes following the EASA ban lift. London routes alone, when operating profitably, generated hundreds of millions in annual revenue—crucial for any path to profitability.

The China-Pakistan Economic Corridor adds another dimension. CPEC infrastructure projects, despite slowing from initial projections, continue reshaping Pakistan’s connectivity. Whether Chinese infrastructure eventually supports increased air connectivity remains speculative, but the potential exists for enhanced routes linking Pakistani cities with Chinese commercial centers.

Lessons from Air India: The Tata Turnaround Template

When evaluating PIA’s prospects, Air India’s recent privatization offers the most relevant comparison—and reveals both possibilities and pitfalls.

In January 2022, Tata Group acquired 100% of Air India from India’s government for Rs180 billion ($2.4 billion), with Tata also assuming Rs153 billion in debt. The remaining Rs462 billion in Air India’s obligations transferred to a government holding company—a structure strikingly similar to Pakistan’s PIA deal.

Air India had lost money annually since 2007 and suffered from poor service, aging fleet, constant delays, and demoralized workforce—challenges mirroring PIA’s current state. CEO Campbell Wilson described the first six months as “really triage,” focused on addressing legacy issues and building operational foundations.

Two years post-privatization, Air India shows promising signs. The airline placed orders for 470 new aircraft—a bold signal of long-term commitment. It expanded international routes, including destinations where Indian carriers previously had no presence, competing directly against Gulf and Western carriers. Fleet expansion includes leasing 30 Boeing and Airbus aircraft, increasing capacity by over 25% within 15 months.

Critically, Tata brought aviation expertise through its joint venture with Singapore Airlines (Vistara) and ownership of Air Asia India. This existing operational knowledge proved invaluable during Air India’s transformation. The Arif Habib consortium lacks comparable aviation sector experience, which could significantly complicate PIA’s turnaround.

Air India also benefited from India’s massive domestic market—a population of 1.4 billion with rapidly growing middle class and aviation demand projected at 9% annual growth. Pakistan’s market, while growing, remains smaller and economically constrained, limiting revenue potential.

The Tata experience demonstrates that airline privatization can succeed with patient capital, professional management, government restraint from interference, and long-term strategic vision. Whether Arif Habib can replicate this formula without Tata’s aviation expertise remains PIA’s central question.

What Could Go Right—and Wrong

Best-Case Scenario: The Arif Habib consortium brings disciplined financial management, injects capital for fleet renewal, leverages the lifted EU ban to restore profitable London routes, focuses on high-yield corridors (Middle East, China, Southeast Asia), and achieves operational breakeven within three years.

Government maintains genuine hands-off stance, allowing market-driven decisions on routes, pricing, staffing, and strategy. The administration’s stated goal—40 functional aircraft and passenger traffic increasing from 4 million to 7 million within four years—becomes reality through sustained investment and operational improvements.

International airline partnerships materialize, providing technical expertise and network connectivity that independent operation cannot achieve. Qatar Airways or Turkish Airlines might see strategic value in Pakistani market access, offering operational know-how alongside commercial cooperation.

This isn’t fantasy. Several emerging market flag carriers achieved similar turnarounds post-privatization, though typically with international airline partners providing crucial technical expertise and market credibility.

Base-Case Scenario: Gradual stabilization persists alongside structural challenges. The government barred the new owner from firing any employee for one year maximum, significantly limiting immediate restructuring. PIA currently employs 6,480 permanent staff plus 2,900 contractual workers—an excessive workforce for 18 operational aircraft representing rough employee-per-aircraft ratios triple industry standards.

Labor unions, which gradually captured effective management control during PIA’s decline, resist necessary changes. The consortium achieves incremental improvements—better on-time performance, modest route additions, reduced operational losses—but transformational change proves elusive.

The airline reaches profitability in 5-7 years, primarily serving niche routes where it maintains competitive advantages: Pakistani diaspora connections, Middle East labor corridors, and domestic trunk routes between Karachi, Lahore, and Islamabad. PIA becomes sustainably mediocre rather than spectacularly broken—an outcome that might constitute success given current dysfunction.

Worst-Case Scenario: Political interference continues despite privatization. Pakistan’s establishment—particularly military-linked business interests that lost the auction—undermines new management through regulatory obstacles, route allocation disputes, and workforce agitation.

Labor unrest hampers operations. Pakistan’s aviation unions possess demonstrated capacity for disruption, having previously grounded flights through strikes and work stoppages. If employees perceive privatization as threatening job security, sustained labor action could cripple operations during the critical transition period.

Fleet expansion stalls due to capital constraints or financing difficulties. International lessors remain skeptical of PIA’s creditworthiness, demanding prohibitive security deposits or guarantee terms that make aircraft acquisition uneconomical.

The consortium, having secured control with minimal upfront cash, extracts value through related-party transactions—inflated procurement contracts with Arif Habib Group companies, above-market facility leases—while operational performance stagnates. This rent-seeking behavior reflects Pakistan’s traditional business culture, where political connections and oligopolistic market positions generate returns more reliably than operational excellence.

Within 5-10 years, PIA requires another bailout or renationalization, completing the cycle of dysfunction. The privatization is remembered as a failed experiment that enriched connected elites without solving underlying problems.

The Broader Stakes: Pakistan at an Economic Crossroads

PIA’s sale transcends one airline’s future. It represents a test case for whether Pakistan can break cycles of state-led dysfunction, whether the IMF’s 25th program proves different from the previous 24, and whether the country’s business elite can look beyond extractive rent-seeking to rebuild national institutions.

Prime Minister Shehbaz Sharif called PIA’s privatization “a central pillar of Pakistan’s economic reform agenda under the $7 billion bailout agreed with the IMF.” The successful transaction may open avenues for selling other entities and boost confidence among local investors who have avoided Pakistan due to an unfavorable business environment.

Pakistan’s privatization pipeline includes power distribution companies (DISCOs), Roosevelt Hotel in New York, and stakes in Oil and Gas Development Company—assets collectively worth over $25 billion. If PIA succeeds, it creates a replicable template. If it fails spectacularly, it poisons the well for broader reforms.

Regional examples offer cautious optimism mixed with sobering reality. Vietnam Airlines navigated difficult privatization with mixed results—improved operational metrics but continued government influence over strategic decisions. Kenya Airways’ privatization initially showed promise before sliding back into losses, eventually requiring government bailout. Air India’s Tata-led turnaround remains incomplete but shows more promising early indicators than most emerging market cases.

Success requires patient capital, government restraint from interference, ruthless operational discipline, and often international airline partnerships bringing technical expertise. The Arif Habib consortium has committed the capital. Whether they possess the discipline, whether the government truly relinquishes control, and whether international partners materialize remain open questions.

The consortium has 90 days from December 23 to complete due diligence and close the transaction. PIA is expected to transition to new management by April 2026, subject to final approvals from the Privatisation Commission board and federal cabinet.

Then the Hard Part Begins

After decades of decline, after EU bans and fraudulent pilot licenses, after empty flights to nowhere and Rs670 billion in accumulated debt, Pakistan International Airlines gets a second chance.

Arif Habib’s Rs135 billion bet represents either visionary investment or spectacular folly—the answer likely emerging over the next three to five years as operational reality collides with ambitious projections.

What’s certain: Pakistani taxpayers remain on the hook for Rs670 billion in extracted debt, serviced at Rs35 billion annually while the Arif Habib consortium controls operations. The government transferred the financial burden while privatizing potential gains—a structure that demands private-sector success to justify public-sector sacrifice.

For Pakistan, PIA’s privatization symbolizes a broader inflection point. Can this nation of 240 million people, possessing significant human capital and strategic geography, transition from perpetual crisis management to sustainable growth? Can business elites evolve beyond traditional rent-seeking to build globally competitive institutions?

The answers won’t arrive in boardrooms or policy documents. They’ll emerge in airport terminals across Pakistan, in on-time departure statistics, in passenger satisfaction scores, and ultimately in financial statements revealing whether PIA generates profits or requires yet another bailout.

Pakistan has bet its aviation future on private enterprise. Arif Habib has bet nearly half a billion dollars on his ability to succeed where governments failed for four decades.

Now we watch whether either bet pays off.

China’s trillion-dollar banking giants dominate global finance—but their real estate exposure could reshape the entire system

The global banking landscape has reached an inflection point. As we close 2025, the world’s 100 largest banks control $95.5 trillion in assets—a figure that eclipses the GDP of most nations combined. Yet beneath this staggering concentration of financial power lies a paradox that should concern policymakers and investors alike: the banks with the biggest balance sheets may not be the most resilient.

Four Chinese state-owned institutions—Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of China—occupy the top spots in the global rankings by total assets. Meanwhile, JPMorgan Chase, the largest U.S. bank and fifth globally, commands the highest market capitalization at nearly $788 billion, signaling that investors value American banking efficiency over sheer size.

This divergence tells us something critical: in 2025’s banking world, scale and strength are no longer synonymous.

The Rankings: Size Doesn’t Equal Safety

Based on the latest data from S&P Global Market Intelligence and financial reports through Q4 2024, here are the world’s ten largest banks by total assets:

1. Industrial and Commercial Bank of China (ICBC) – $6.6 trillion in assets. The world’s largest bank by assets continues to benefit from Beijing’s infrastructure spending and state support, operating over 16,000 branches globally. Yet non-performing loan ratios are forecast to rise to 5.4-5.8% in 2025-2027, up from 5.1% in 2024, driven primarily by real estate exposure.

2. Agricultural Bank of China – Approximately $5.8 trillion. Deeply embedded in rural China’s financial system, ABC faces similar real estate headwinds while supporting Beijing’s rural development priorities.

3. China Construction Bank – Around $5.6 trillion. As its name suggests, CCB’s fortunes are intimately tied to China’s construction sector, making it particularly vulnerable to the ongoing property crisis.

4. Bank of China – Approximately $4.8 trillion. The most internationally oriented of China’s “Big Four,” with significant foreign operations, yet still carrying substantial domestic real estate exposure.

5. JPMorgan Chase – $4.0 trillion in assets. The most profitable large bank globally, JPMorgan’s return on equity reached 18% in 2024, demonstrating that American banks achieve more with less. With 5,021 domestic branches and sophisticated digital platforms, JPMorgan exemplifies the “smaller but mightier” model.

6. Bank of America – $2.65 trillion. The second-largest U.S. bank maintains 3,624 domestic branches and has aggressively invested in digital banking, serving millions through its AI-powered virtual assistant Erica.

7. HSBC Holdings – $3.0 trillion. Europe’s largest bank by assets, HSBC is navigating a strategic pivot toward Asia while managing legacy exposures across its global footprint.

8. BNP Paribas – Approximately $2.9 trillion. France’s largest bank and a European leader in investment banking and corporate finance.

9. Crédit Agricole – Around $2.6 trillion. Another French banking giant with significant retail and corporate banking operations across Europe.

10. Citigroup – $1.84 trillion. Once the world’s largest bank, Citi has streamlined operations but maintains an unparalleled global presence with operations in 109 foreign branches.

The Elephant in the Boardroom: China’s Real Estate Time Bomb

Here’s what the asset rankings don’t show: Chinese banks’ exposure to real estate loans has created systemic vulnerabilities, with non-performing asset ratios for property development loans potentially reaching 7% by 2027 if markets stabilize—and much worse if they don’t.

Walk through any major Chinese city today and you’ll see the problem in concrete and steel: unfinished apartment towers, silent construction sites, and the ghostly remains of a $52 trillion property bubble that’s now deflating. Chinese policymakers removed price caps on housing in 2024, allowing eligible families to buy unlimited homes in suburban areas, a desperate attempt to revive demand that has largely failed.

The human cost is staggering. Mid-2025 data shows mortgage non-performing loan rates at listed banks rising overall, with some banks up more than 20 basis points. Millions of Chinese homeowners now hold “underwater” mortgages—properties worth less than their outstanding loans. Some have lost both their homes and down payments yet still owe banks hundreds of thousands of yuan.

For the Big Four Chinese banks, this isn’t just a loan quality issue—it’s an existential question. Banks’ exposure to housing and local government debt declined to 20.7% in Q4 2024 from 22.2% a year earlier, but that still represents trillions in potentially troubled assets. Beijing’s response? Issuing 500 billion yuan in special treasury bonds in 2025 to support bank recapitalization.

Think about that for a moment. The government that owns these banks is now having to inject capital into them to cover losses from lending that the government itself encouraged. It’s a circular firing squad of state capitalism.

American Excellence: Smaller, Smarter, More Profitable

Cross the Pacific and the banking model looks radically different. JPMorgan Chase’s annualized return on equity for Q2 2025 was 16.93%, a performance Chinese banks can only dream of. With roughly $4 trillion in assets—a third of ICBC’s size—JPMorgan generated comparable or superior profits through better risk management, superior technology, and diversified revenue streams.

American banks aren’t perfect. They face their own challenges: rising commercial real estate defaults, regulatory uncertainty around the Basel III endgame rules, and fierce competition from fintech disruptors. Yet their fundamental business model—strict capital requirements, transparent accounting, and market discipline—creates resilience.

The regulatory framework matters enormously. Basel III requires banks to maintain a minimum Common Equity Tier 1 ratio at all times, plus a mandatory capital conservation buffer equivalent to at least 2.5% of risk-weighted assets. U.S. implementation has been stricter than in many jurisdictions, forcing American banks to hold more capital but also making them genuinely safer.

Compare this to China, where banks have remained cautious about new property exposure, transferring housing risks to non-bank financial institutions. That’s not risk management—that’s risk concealment. The leverage doesn’t disappear; it just moves to less regulated corners of the financial system.

The Digital Divide: Innovation as the New Moat

Size and capital strength matter, but in 2025, technological sophistication increasingly separates winners from also-rans. DBS Bank’s AI investments are projected to reach 750 million Singapore dollars (about $577 million) in 2024 and surpass SG$1 billion in 2025. The Singapore-based bank has deployed over 1,500 AI and machine learning models across 370 use cases, from corporate risk assessment to customer service.

JPMorgan and Bank of America aren’t far behind. BofA’s Erica virtual assistant has handled billions of customer interactions, while JPMorgan uses AI for everything from fraud detection to trading strategies. Only 8% of banks were developing generative AI systematically in 2024, with 78% taking a tactical approach, but that’s changing rapidly.

The Chinese banks? They’re investing heavily in digital infrastructure, to be sure. Yet their technology serves a fundamentally different purpose: facilitating state-directed lending, monitoring transactions for political purposes, and supporting Beijing’s social credit systems. Innovation, yes—but innovation in service of control rather than customer value.

European banks occupy an uncomfortable middle ground. BBVA’s expansion of its OpenAI collaboration will see ChatGPT Enterprise rolled out to all 120,000 global employees, signaling serious AI ambitions. Yet European banks collectively lag their American and Asian peers in both investment and implementation.

Basel III Endgame: The Regulatory Reckoning

Speaking of uncomfortable positions, let’s address the regulatory elephant: the Basel III endgame. Under the original proposal, large banks would begin transitioning to the new framework on July 1, 2025, with full compliance starting July 1, 2028. The proposal would have resulted in an aggregate 16% increase in common equity tier 1 capital requirements for affected bank holding companies.

But here’s the twist: US regulators recently proposed to reduce capital requirements on the largest banks, bowing to intense industry lobbying and political pressure. The revised proposal now calls for only a 9% increase for global systemically important banks—still significant, but less onerous than originally planned.

This compromise may prove disastrous. The average leverage ratio of US global systemically important banks declined from a 2016 peak of 9% to about 7% in 2023 and has remained there. Banks have been gaming the system, increasing risk exposure while maintaining superficially healthy risk-weighted capital ratios.

Meanwhile, the European Central Bank and Bank of England have delayed their Basel III implementation, citing US inaction. We’re witnessing a potential regulatory race to the bottom—exactly what the Basel framework was designed to prevent.

The Geopolitical Wildcard: Trade, Tariffs, and Banking Stress

Banking doesn’t happen in a vacuum. International trade disputes and changes in tariffs are expected to influence the performance of banks, impacting asset quality and growth potential. If U.S.-China trade tensions escalate further—a real possibility given recent political developments—Chinese banks will feel the pain first and hardest.

Reciprocal tariffs between the US and China are exerting pressure on Chinese banks, particularly due to declining demand from export-oriented manufacturers. When factories close or cut production, loan defaults follow. It’s Economics 101, but at a scale that could destabilize the entire Chinese banking system.

American banks have their own trade exposure, of course, but it’s more diversified and often hedged. JPMorgan operates in over 100 countries. Citi, despite its shrinking footprint, remains the most truly global bank. They have options. Chinese banks, despite their size, remain heavily dependent on the domestic economy.

What This Means for 2026 and Beyond

So where does this leave us? Here’s my take, informed by twenty years covering this beat:

First, asset size is an increasingly misleading metric. ICBC’s $6.6 trillion balance sheet looks impressive until you examine what’s actually on it. Quality trumps quantity, and American banks demonstrate this daily through superior profitability and resilience.

Second, the Chinese banking system faces a reckoning. It’s not a matter of if, but when and how severe. Chinese banks were sitting on 3.2 trillion yuan ($440 billion) worth of bad loans by the end of September—a 33% increase from pre-Covid times. These numbers, from the banks themselves, are almost certainly understated.

Third, technology is creating a two-tier banking world. Banks that aggressively adopt AI, blockchain, and advanced analytics will dominate. Those that don’t will become utilities—low-margin, heavily regulated, and perpetually vulnerable to disruption.

Fourth, regulatory arbitrage is back with a vengeance. The Basel III endgame was supposed to eliminate it. Instead, we’re seeing regulators water down requirements in response to bank lobbying. This should terrify anyone who remembers 2008.

Finally, geopolitics increasingly dictates banking success. In an era of great power competition, owning a bank in Shanghai or New York means different things. Chinese banks serve the state; American banks serve shareholders (at least theoretically). European banks are caught in between, trying to navigate relationships with both powers while maintaining independence.

The Billion-Dollar Question

Here’s what keeps me up at night: We’ve seen this movie before. Massive banks, seemingly too big to fail, carrying hidden risks that regulators either can’t see or choose to ignore. Policymakers convinced that “this time is different” because of better capital rules, smarter supervision, or more sophisticated risk management.

It never is.

The difference in 2025 is that the risks are concentrated in banks that operate under fundamentally different rules. When—not if—the Chinese property crisis forces Beijing to choose between bank bailouts and economic growth, the ripples will reach far beyond Asia.

The world’s largest 100 banks account for $95.5 trillion in assets, up 3% year over year. That’s growth, yes, but it’s also concentration. Too much power, in too few hands, making too many bets on too few assumptions.

Jamie Dimon, CEO of JPMorgan, likes to say his bank could survive another 2008-style crisis. He’s probably right—JPMorgan is genuinely well-capitalized and well-managed. But could the global financial system survive a crisis originating in China’s $6 trillion banking sector?

That’s the question that should haunt every central banker and finance minister. Because in 2025, we’re not just worried about banks that are too big to fail. We’re worried about banks that are too big, too opaque, and too politically connected for anyone to fully understand the risks they carry.

The world’s top ten banks in 2025 aren’t just financial institutions. They’re nodes in a global system where everyone’s connected to everyone else through invisible chains of credit, derivatives, and counterparty risk. Pull one thread, and you might unravel the whole sweater.

Sleep tight.

The author is a Senior Opinion Columnist specializing in global finance and policy. Views expressed are personal.