AROUND the same time last year, I wrote the economy has reached what I called “peak stability”. This was a stage where all the measures taken to stabilise the economy had delivered their results, and had now reached the end of their line. A few indicators had begun to show a little stress, but around the middle of the year, in June 2025 specifically, a large inflow of almost $5.25 billion suddenly shored up the reserves and allowed the government to end the fiscal year with their State Bank reserves almost $500 million above the target set in the IMF programme.
2025 saw a moderate trade deficit and surging remittances, which helped the current account balance significantly. Between January and November, the months for which data is available, the trade deficit came in around $30.5bn while remittances (including other transfers) came in at $38.8bn. Seems like a nice balance there, until you realise that something ate up $8bn out of the balance-of-payments because the overall surplus was just about $263m.
That something was interest payments on external debts. In 11 months of 2025, Pakistan paid $7.1bn in interest payments on its external debt. For almost a decade, from 2013 to 2022, this figure oscillated between $1.5bn to $4.0bn. Then it began to climb. Some of the increase was due to rising interest rates as the returns on 10-year US Treasury paper spiked from a Covid-era low of 1.44 per cent to 4.35pc in 2025. This was a sharp hike without doubt, and it weighed heavily on the balance-of-payments of all countries.
But in Pakistan’s case there was something more. In June of every year for the past few years, Pakistan has been borrowing heavily from private commercial lenders in the closing month of the fiscal year to shore up its reserves. In June 2023 and 2024, for example, they borrowed almost a billion dollars from commercial creditors. Then came June 2025 and this figure leapt to $3.4bn, nearly 65pc of the inflows of that month.
A stagnant economy cannot afford high prices, high taxes and high debt burdens for long.
The story is quite simple. Pakistan has balanced its external account by throttling its external trade, choking its economy and heavy borrowing, including private borrowing. Since 2023, for example, total private commercial borrowing by the country has been $7.5bn. It is not known what the maturity of these loans was, and therefore not possible to say how much has been retired and how much is still on the stock of total external debt now. But the scale of borrowing from private commercial lenders has increased massively in the past few years, just as the current account deficit has also diminished massively, if not disappeared altogether for many months at a stretch.
The stability in the economy cannot last much longer however. It has been earned via high taxes, a high energy price burden due to misplaced investments in the energy sector coupled with massive misgovernance. It has also been sustained through expensive borrowing, reflected at least in part by the rising burden of interest payments the economy is carrying. A stagnant economy cannot afford high prices, high taxes and high debt burdens for long.
In truth, we had hit peak stability a year ago. That was the moment to start transitioning out from stabilisation towards growth, on the back of some sort of reform agenda. But no reforms came. Nothing happened. The government was content to simply proclaim success on the back of stabilisation alone, thinking its job was done. All of 2025 was a grind, as a result, slogging ahead in a high-cost, high-tax and high-debt environment, with no end in sight.
All governments in the past have done what they are going to do in the first year or two of their tenure. Whether it was the signature reform of the federation through the 18th Amendment and the associated NFC Award in 2009 of the PPP government, or the CPEC investments and associated growth spurt of the PML-N government from 2013 to 2018, the work was largely done in the first two years, and in the latter case, took the another two years before the ribbons started being cut on the highways and power plants. The Musharraf regime spent two years stabilising the economy, and unfurled its reforms in 2002 via the telecom sector, the power reforms, and the privatisations.
But the present government has spent its first two years doing nothing discernible. And now they announce the return of Mr Ishaq Dar as the exports czar, as the man who will be tasked with bringing about an export surge from here forward. This ought to be easy for him. During his finance ministership, Pakistan’s exports plummeted. Maybe, if he does the opposite of whatever he did while in power we will have an export surge.
By now, announcements are coming with an increasing regularity, of a new committee or a new goal being set. But it is too little, too late. By now it has become clear that this government cannot punch its way out of this paper bag. They are stuck in a gruelling adjustment, weighing heavily on the citizenry and on owners of capital alike. They have juiced this lemon for all it is worth. From here on, some sort of a vision needs to kick in. Some way to unlock the growth potential of Pakistan that is tied down by layers and layers of mismanagement, bad pricing and bad legacy. But there is nothing.
The only way they can end this economic stalemate is with some sort of bilateral or other external injection of liquidity. It was the same way the Musharraf regime did it. Except they had 9/11 as the bonanza. We wait to see what these guys will get.
The writer is a business and economy journalist.
Published in Dawn, January 15th, 2026
