n 2024, Pakistan’s economy presented a paradox: tentative recovery amidst persistent vulnerabilities. Given the unique set of political and security challenges, including a volatile regional environment, the year’s modest gains were particularly hard-earned. Braving many challenges, the economy managed to inch forward, reflecting resilience and offering a glimmer of hope. Macroeconomic indicators, such as improved foreign reserves and controlled fiscal deficits, suggest that Pakistan has fared relatively well given the odds.

However, the economy is not out of the thick of things, yet. Many already knew it but toward the end of the year, the International Monetary Fund mission once again reminded us that Pakistan continues to grapple with both old ailments and new pressures. The statement issued after the IMF team’s November 2024 visit emphasised the structural weaknesses and pressing need for reform while offering a roadmap for progress strewn with significant hurdles.

Let us look at the IMF’s statement. Don’t worry about the technical lingo; I will explain it. The statement goes: “…We (the IMF and the government of Pakistan) agreed with the need to continue prudent fiscal and monetary policies, revenue mobilisation from untapped tax bases, while transferring greater social and development responsibilities to provinces. In addition, structural energy reforms and constructive efforts are critical to restore the sector’s viability and Pakistan should take steps to decrease state intervention in the economy and enhance competition, which will help foster the development of a dynamic private sector. Strong [IMF] programme implementation can create a more prosperous and more inclusive Pakistan, improving living standards for all Pakistanis…”

As per the IMF, despite the positive developments on the macroeconomic front, deeper issues persisted. At the heart of Pakistan’s troubles lies its inability to break free from structural constraints, including a narrow tax base; chronic underperformance of the private sector; and inefficiencies in state-owned enterprises that have hindered fiscal stability and economic growth for years. These issues remained the foundation of economic vulnerability even as the government sought to address them. Despite a decrease in inflation, public debt and scant foreign exchange reserves continued to dominate the economic narrative. The IMF’s call for prudent fiscal and monetary policies echoed familiar concerns about the country’s debt sustainability.

Building upon these longstanding issues, new pressures emerged in 2024. The austerity measures tied to the IMF’s Extended Fund Facility amplified the economic burden. Subsidy cuts on fuel and electricity, alongside increased income taxes, significantly reduced disposable incomes, particularly for the middle and lower-income groups. The job market and investment stagnated, with manufacturing and construction sectors particularly hit by political uncertainty and high borrowing costs (interest rates have eased off significantly in the last two months), exacerbating the sense of economic insecurity.

Energy costs skyrocketed, not because the IMF wanted Pakistanis to pay high tariffs but mainly due to the decades of mismanagement in the energy sector that the IMF advises to correct. Compounded by high transmission losses, dependence on imported fuels, the burden of energy circular debt (including the capacity payment charges) and delayed renewable energy integration, the energy sector has become a critical pain point for households and businesses alike. The IMF’s insistence on structural energy reforms highlighted the urgency of restoring the sector’s viability. The emphasis on reducing state intervention to foster private sector competition similarly signalled the need for a paradigm shift in how the economy is managed.

The cascading economic challenges of 2024 exacted a heavy toll on ordinary citizens. Inflation, particularly in the first half, remained uncomfortably high, with food price volatility forcing many households to cut back on essentials. Additionally, the slow internet speed persisted as a concern, hampering productivity and connectivity for citizens and businesses alike.

Despite the headwinds, 2024 brought rays of hope. The central bank’s monetary tightening helped anchor inflation expectations, while improved export volumes and remittance flows provided much-needed breathing room. Real GDP growth is expected to rebound to an estimated 2.5 percent to 3.5 percent, marking a notable recovery from the contraction in 2023. Key contributors included a strong recovery in wheat and sugarcane production, robust remittance inflows and a steady uptick in textile and IT exports, which bolstered trade balances. Inflation began to decelerate in the latter half of the year, supported by fiscal consolidation and monetary tightening, while foreign exchange reserves tripled to reach $12.1 billion by December 2024.

But these gains are uneven. While fiscal discipline brought the deficit down to 3.1 percent of the GDP and there is a current account surplus, the benefits are largely confined to macroeconomic indicators. Many Pakistanis continued to struggle with rising prices and stagnant incomes, highlighting the disconnect between national recovery and individual well-being.

The IMF’s recommendations highlight a clear path for Pakistan to address its challenges: expand the tax base to increase fiscal revenue and fund essential services; reform the energy sector to lower costs and ensure reliable supply; reduce state intervention to foster private sector growth; and empower provinces to take on greater developmental responsibilities, thereby improving service delivery and regional equity. Implementing these reforms will not only require political will but also careful management of domestic and international pressures. This path offers a framework to ensure that macroeconomic stability translates into inclusive growth. However, the transition cost is quite high and will disproportionally affect those who benefit the least from economic recovery.

In addition to domestic challenges, external factors such as fluctuating global commodity prices, regional geopolitical tensions, the unpredictability of the Trump administration’s trade policies and attitude towards Pakistan and climate events like floods or droughts could disrupt and further strain Pakistan’s economic recovery trajectory.

Domestically, governance and political stability will be crucial in sustaining reform momentum. Addressing trust deficits through transparent fiscal policies and robust social safety nets could bolster public confidence and make economic reforms more inclusive. Strengthening provincial capacity to manage developmental responsibilities, as the IMF urged, will also determine whether progress can reach the grassroots. Most importantly, a cooling down of political temperature, which requires maturity from both the treasury and opposition benches, may allow the government to focus more on people’s issues.

Pakistan’s macroeconomy is in significantly better shape now compared to 2022 and 2023. However, this achievement will not automatically translate into tangible benefits for the masses, such as job creation or increased purchasing power. To ensure that the economy’s stability leads to broader prosperity, the government must focus on fostering a dynamic private sector, improving ease of doing business, and prioritising investments in human capital. The road to a more prosperous and inclusive future is challenging but not impossible. The outgoing year’s lessons provide both an inspiration and a framework for reform. Whether policymakers seize this moment to enact meaningful change to shape the country’s economic destiny, not only for 2025 but for years to come, remains to be seen.

The writer heads the Sustainable Development Policy Institute. His LinkedIn handle is abidsuleri