EDITORIAL: Resident Representative of the International Monetary Fund (IMF) in Islamabad while addressing a policy discussion hosted by the Pakistan Institute of Development Economics (PIDE) emphasised the need for continued and credible reform efforts for not only macroeconomic stabilisation but also for long-term economic resilience. His statement is at odds with the repeated claims made by Finance Minister Muhammad Aurangzeb and Governor State Bank of Pakistan Jameel Ahmed, the two signatories to the Letter of Intent that triggers the Fund Board’s approval of the release of the next tranche. In the first week of November, Aurangzeb in a press conference claimed that economic stability had been achieved backed by the leading rating agencies upgrading Pakistan after a gap of three years, claiming that “these agencies are now aligned not only on where we stand but also on our positive outlook.” This optimistic prognosis was shared by Jameel Ahmed who has repeatedly claimed that stabilisation measures have started yielding results with inflation coming down and the external account position improved. The Prime Minister, too, publicly claimed that the economy was out of the woods. Two observations are critical. Firstly, government finance statistics (GFS) have “important shortcomings” as per the IMF October 2024 report that has prompted a technical assistance designed to address issues in “the source data available for sectors accounting for around a third of GDP, while there are issues with the granularity and reliability of the GFS” and secondly, a recent detailed survey carried out by Business Recorder revealed that major subsectors — including textiles, cement and steel — have challenged the government’s claim of large-scale manufacturing (LSM) growth at positive 5.02 percent year-on-year (July-October 2025). We have consistently pointed out that the rating upgrade in 2025 kept the country in the highly speculative category with a limited margin of safety (defined as financial commitments being met with capacity for continued payment vulnerable to deterioration in the business and economic environment). In addition, it is relevant to note that there was a lag between the rating upgrade and the ongoing loan approval in October 2024 unlike in previous years, no doubt after the Fund expressed concerns over Pakistani authorities abandoning an ongoing programme due to its inherent political challenges and, if implemented, reversing the reforms as and when the programme ended. Credible reports suggest that the Prime Minister has directed the relevant ministries to set up dedicated committees tasked to renegotiate and try to convince the IMF to phase out some of the very harsh upfront conditions that are impeding growth in general (industrial and agriculture output growth in particular). This indicates that the Executive is fully cognizant of the policy rigidity imposed by the Fund that is anti-growth and includes severely contractionary monetary and fiscal policies coupled with the objective of achieving full-cost recovery in all utilities while ending all subsidies to industry and farm sector as previous subsidies kept the two sectors uncompetitive and at an “infant” stage. It is, therefore, unlikely that the IMF will back down on its current policy matrix for Pakistan though it is very likely that the economic team leaders can create some leverage with the Fund by cutting the current expenditure substantially if the influential sectors voluntarily opt out of their budgeted allocations by at least 10 percent, ushering in pension reforms rather than deferring them once again to a future date and tightening procurement laws to minimise corruption, a major source of corruption as per the Corruption and Governance Diagnostic report uploaded by the IMF on 20 November, a prior condition for the second tranche release. To conclude, it is hoped that the government shares credible data, which is aligned with the quality of life of the general public while at the same time it is critical to acknowledge the flawed past policies that account for the current highest utility rates in the region (an example being the very flawed contracts signed with foreign Independent Power Producers as well as the gas deal signed with Qatar) and not reliant on overstating development outlay for the year, which is, unfortunately, slashed as and when the deficit inches towards unsustainable levels as it did during the first quarter of the current year. Copyright Business Recorder, 2025