IN DIRE STRAITS

A fresh IMF loan might provide temporary relief to Pakistan's economy—in shambles for decades now—but will it be able to sustain without long-term reforms, especially after the military escalation with India reveals its priorities lie elsewhere?

- BY SURABHI & RAHUL OBEROI

TWO COUNTRIES WERE founded in 1947 in South Asia, India and Pakistan. Like the eminently popular Bollywood movies from India, which often tell contrasting stories of two siblings, these two countries have followed different trajectories since Independence.

While India went on to build itself as a functioning democratic powerhouse and is set to overtake Japan to become the fourth-largest economy in 2025, the other, Pakistan, remains mired in an economic crisis, wreaked by poor fiscal and social indicators and crumbling under the weight of its army’s jihadi policies.

India’s robust democratic institutions, coupled with its focus on economic growth and reforms over the years, have worked in its favour, while Pakistan’s fragile democracy—marked by coups, military involvement in politics and deep social inequality—has proved to be a major stumbling block to its economic development. Pakistan’s gross domestic product (GDP) is approximately 0.33% of world’s GDP, as per the International Monetary Fund (IMF). Despite the small size, its economy has remained unstable and hasn’t been able to develop resilience.

Pakistan’s latest loan from the IMF is the 25th since its inception and the highest number of times that any country has approached IMF for assistance. It currently owes the IMF over $8 billion. Experts believe that going by its past, it is unlikely to lead to a substantial improvement in its economy.

Unlike India, Pakistan has historically been dealing with an unstable political environment and an all-powerful military. The situation has worsened since the Covid-19, with debilitatingly high external debt, low growth of less than 3%, record-high unemployment, and inflation that rose to 40% in May 2023, all of which snowballed into the economic crisis of 2024, bringing the country again to the brink of a sovereign default.