ISLAMABAD: The Economic Policy & Business Development (EPBD) think tank has rejected the assertion that Pakistan’s current economic stability is artificial or unsustainable. The think tank stated that Pakistan’s economic stability is built on sound fundamentals and not artificial interventions.
Pakistan’s economic stability reflects genuine structural reforms and successful crisis resolution. The transformation from near-default in 2022 to current stability demonstrates a commitment to market-based policies and comprehensive reforms recognized by international partners. The comparison to Sri Lanka’s failed model is inappropriate and inaccurate. Pakistan’s achievements represent a model of successful economic recovery, not artificial interventions.
Pakistan has systematically built foreign exchange reserves through legitimate market operations. Increasing from $3 billion in 2023 to $14.46 billion as of July 18, 2025.
Key drivers of reserve accumulation include
- $8 billion in strategic market purchases by the State Bank of Pakistan
- Worker remittances of $38.3 billion (27% year-on-year increase)
- Current account turnaround from $2.072 billion deficit to $2.106 billion surplus
- Recent inflows of $3.1 billion in commercial loans and $500 million in multilateral funding.
The State Bank’s net foreign currency reserves stood at $14.46 billion as of July 18, 2025, representing a 59% increase from $9.06 billion on June 20, 2025. This accumulation demonstrates Pakistan’s strategy of building reserves through market-based mechanisms while maintaining exchange rate flexibility, representing the opposite of Sri Lanka’s approach, where reserves were depleted to defend an artificial exchange rate until economic collapse.
Equally remarkable is Pakistan’s inflation control achievement – reducing inflation from a crisis peak of 38% in May 2023 to just 3.2% in June 2025. This substantial 34.8 percentage point reduction represents one of the most successful disinflation episodes in recent emerging market history, achieved without compromising economic growth fundamentals.
During the critical transition period from August 2023 to February 2024, policy consistency was maintained through the caretaker administration, ensuring uninterrupted implementation of crisis management measures, including the IMF Stand-By Arrangement (SBA), and securing essential external financing to prevent default.
This institutional continuity during a politically sensitive period proved crucial for establishing market confidence and creating the foundation for subsequent economic achievements.
Monetary Policy: The State Bank implemented 1,100 basis points of policy rate cuts from 22% to 11% since June 2024, demonstrating the flexibility that comes with genuine macroeconomic stability. With inflation at 3.2% in June 2025, Pakistan maintains a real interest rate of approximately 7.8%, allowing for further monetary accommodation as conditions permit.
Fiscal Performance: Primary fiscal surplus of 2.2% of GDP in FY25 exceeded targets, while circular debt flow was reduced to PRs 166 billion versus a target of PRs 554 billion. Government debt reached PKR 76.045 trillion (66.3% of GDP) in May 2025, but the improving fiscal trajectory supports debt sustainability.
The criticism ignores the severe crisis Pakistan inherited in 2022, which required immediate intervention. A clear timeline demonstrates Pakistan’s systematic crisis resolution approach:
2022 Crisis Peak:
- The current account deficit reached $17.5 billion
- Foreign exchange reserves depleted to critical levels
- Currency under severe pressure, requiring market-based adjustment from 140 to 280 rupees per dollar
- Economic fundamentals required comprehensive restructuring
2023 Stabilization Phase:
- IMF Stand-By Arrangement (SBA) program initiated for immediate crisis management
- Friendly country deposits of $16 billion are secured to prevent default
- Reserves stabilized at $3 billion baseline
- Initial stabilization measures implemented
2024-2025—Recovery and Building Phase:
- IMF Extended Fund Facility (EFF) program commenced for structural transformation
- Systematic reserve accumulation through market operations ($8 billion SBP purchases)
- Current account transformation from $2.072 billion deficit to $2.106 billion surplus
- All seven quantitative performance criteria were consistently met under EFF
- Comprehensive structural benchmark implementation across tax administration, energy, and SOE reforms
- Policy rate flexibility demonstrated through 1,100 basis 1,100-basis-point reduction from 22% to 11%
- Climate resilience framework integration through $1.4 billion RSF facility
The subsequent turnaround demonstrates Pakistan’s crisis response effectiveness. From requiring $16 billion in friendly country deposits to manage the crisis, Pakistan has now built reserves through its own economic fundamentals and policy reforms. The Real Effective Exchange Rate (REER) alignment ensures currency competitiveness without the artificial overvaluation that characterized Sri Lanka’s failed approach.
While manufacturing faces challenges, key stabilization indicators demonstrate genuine progress:
Manufacturing Sector: Large Scale Manufacturing showed 2.3% year-on-year growth in May 2025, though cumulative FY25 performance remained negative at -1.21%, reflecting ongoing industrial adjustment. Notably, the automobile sector expanded 43.94% and textile sector grew 2.79% year-to-date, indicating selective recovery in key industries.
External Sector Strength: Foreign Direct Investment increased 4.7% to $2.457 billion, while Pakistan’s export performance improved with the trade deficit manageable at $26.35 billion versus $24.1 billion in FY24. The current account transformation from a $2.07 billion deficit to a $2.1 billion surplus represents a $4.2 billion improvement.
Fiscal and Revenue Performance: FBR tax collection reached PKR 11.9 trillion in FY25, a 32% increase from PKR 9.03 trillion in FY24, despite missing revised targets. This revenue growth occurred alongside policy rate reductions from 22% to 11%, demonstrating the economy’s responsiveness to monetary easing.
Currency Valuation: Independent analysis by Tola Associates suggests the PKR’s fair value at 259.6/USD compared to the current 283.8/USD, indicating the currency remains appropriately undervalued for export competitiveness rather than artificially overvalued as in Sri Lanka’s case.
Pakistan has also pioneered climate-economic integration through the $1.4 billion Resilience and Sustainability Facility. Becoming the first country to systematically integrate climate considerations across all economic policy frameworks.
