THIS was the year of stabilisation, when Pakistan’s economy was pulled out from one of the worst bouts of instability it had ever seen; 2025 was also the year when the limits of stability were discovered. Stability of the sort that an IMF programme brings is a strange place for any country to be. One cannot stay in that state for very long. In the case of Pakistan, an estimated 2.5 to three million new entrants enter the labour force every year and creating jobs for them is one of the biggest challenges for economic managers. Economists have estimated that a GDP growth rate of six per cent per annum is needed at a minimum to create enough jobs to productively employ all these people. That is the minimum required to keep pace with the core requirements of Pakistan’s society. Anything less and the ranks of the unemployed start to swell and with that comes widespread disaffection in society. If the trend of low growth and rising unemployment persists for a few years, the society turns into a pressure cooker. Pakistan teetered on this edge all through 2025. The economy had just emerged from one of the biggest bouts of instability it had ever seen in its history. An inflationary fire raged from 2021 all through 2023, reaching a historic peak of 38pc year-on-year in May of that year before tapering off all through 2024. Foreign exchange reserves hit near default levels in the summer of 2022 and remained at that level until an emergency bailout from the IMF in July 2023, which pulled the country away from the edge of catastrophe. They remained around $12 billion till the opening months of 2025 when they began to climb slowly, recovering to a level sufficient to pay for 2.5 months of imports only in the second half of the year. Both hallmarks of the extended post-Covid crisis that gripped Pakistan’s economy — inflation and foreign exchange reserve depletion — were overcome in 2025. This was the year stability took root and the economy turned the corner out of what was decidedly one of the gravest crises it had ever been through. At the start of the year the current account was registering strong surpluses, reaching $2.1bn by June 2025 , what the IMF described as “Pakistan’s first surplus in 14 years”. This helped lift foreign exchange reserves to above two months of import cover after many years, and put it on course to hit the projected level of 2.7 months of import cover by the middle of 2026. Two critical catastrophes were averted — default and inflation. But the problems had not been solved. Inflation also receded in 2025. Having hit a peak of 38pc in May 2023, the fire died down by the end of 2024 to reach single digits. At the opening of 2025 inflation was at an all-time low of less than 1pc before starting to rise again and hit 6pc by year end. The most ferocious inflationary fire that ever raged in Pakistan’s history was finally extinguished, and 2025 was the first full year when the economy saw low inflation since Covid. Two critical catastrophes were finally averted — default and inflation. But the problems had not been solved. This feat, of stabilising the economy, was achieved the same way it had always been done: with an IMF programme that immediately choked off all growth. GDP growth fell to around 3pc and according to the IMF programme signed in late 2024, it cannot revive much beyond that level for at least another two years, while the programme is still on and in its immediate aftermath. And therein lay the most critical problem facing the government and the economy. Inflation was doused and default was averted by extinguishing growth, which killed the demand for imports and brought down the trade deficit, and threw the current account into surplus. The State Bank ran up high interest rates in preceding years, cutting them slowly as inflation fell but stopped once they hit 11pc, drawing howls of protest from the business community. And the tax effort was ramped up. Business was now reeling beneath the weight of high taxes and high interest rates. All year this state of affairs continued with no relief in sight. By the time 2025 ended the prospects for growth still seemed remote but the outline of how the government intends to pull itself out of this quagmire began to take shape. The May war with India had sent a strong signal to countries around the world that Pakistan had built able defences for itself, and done so using Chinese technology. In the second half of the year countries began lining up to ask if Pakistan could help build such defences for them as well. A defence agreement was signed with Saudi Arabia and towards the end of 2025 the President of the UAE, Sheikh Mohamed bin Zayed Al Nahyan, also came to Pakistan for a trip that was in large part official, and in small part personal. And the privatisation of PIA later in the year heralded not just the restart of the privatisation programme that had been stalled since 2005. The participation of Fauji Fertiliser Company in the consortium that bought out the airline signalled an interest in the military to start acquiring stakes in the economy. Following the departure of Sheikh Zayed, Foreign Minister Ishaq Dar announced that an agreement has been reached on a debt equity swap where the UAE will accept shares of companies owned by the Fauji Foundation in return for its $1bn deposit that is set to mature in March of 2026. The outlines of how growth could be restarted had begun to appear. A new model of public-private ownership of large assets in sectors like infrastructure, minerals and others is likely going to be used to either attract direct investment from bilateral partners, or undertake more debt equity swaps against the deposits placed in Pakistan’s central bank by Gulf countries. The year 2025 was when the tide turned in the economy. Pakistan suddenly found a new place in the eyes of important countries around the world following its performance in the May war against India, and leveraged this to put in place bilateral partnerships that its government began using to help underwrite its transition from stabilisation to growth. In short, 2025 was the year when a new opportunity for a geopolitical rent dawned on the country and a path out of a crippling stabilisation programme began to open up. Depending on how the government plays its cards in the first few months of the new year, the transition to growth could come about in 2026. And in the process, the shape of Pakistan’s economy could undergo a profound structural transformation, just not of the sort that reform-minded economists have been calling for.