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One year after signing a new deal with the International Monetary Fund, Pakistan once again suffered financial tensions as well as climate destruction. When the government is preparing for the next IMF review, the economy is facing the pace of governance reforms due to floods, rising debt and increasing frustration of the fund. The question is not whether Islamabad can secure the next round of funding, but can it break its dependence on the bailout and reduce the risk of climate shock.
The floods of 2025 have destroyed large areas of the worst people over the years, some of them are still recovering from the destruction of 2022. The whole parties were submerged, the crops were wiped out and the infrastructure was swept away. Relief and reconstruction are already using minor development allocation, which has little room for long -term investment. This week, the crisis increased, India opened the doors of large dams in occupied Kashmir.
Climate tremors now spend as much as its social costs. Pakistani officials have repeatedly urged the international community to provide cheap climate support, and have argued that the country contributes little to global emissions, but still suffering from their effects. Islamabad has struggled to meet the situation of green finance. Each flood increases the financial burden, which is forced to borrow more and the country has to push into a deep debt.
The debt burden is already severe. Worldwide, the growing cost of borrowing has increased the payment of interest in modern economies to 3.3 % of GDP, which is higher than their defense spending. For Pakistan, the photo is a Blackker. Public debt is 74 % of GDP so that the loan service uses mostly federal taxes.
In order to meet the IMF’s reserve target in June, Islamabad had to play more than $ 3.4 billion in Chinese loans, divided between central bank reserves and re -finished credit. Instead of victory, it reduced Pakistan’s dependence on Beijing, without which the government took the risk of default on payment.
IMF concerns are beyond paying loans. It has long criticized the misuse of development funds at the discretion of parliamentarians. The fund now insists that such allocated persons be sent through the Public Sector Development Program under strict scrutiny.
The unpredictable growth of digital finance has raised other red flags. Finance Minister Mohammad Aurangzeb has warned that about 15 % of the transactions neglect the system, which increases the risk of money laundering and Pakistan faces another negative review through the Financial Action Task Force.
The IMF is central to the engagement. In order to facilitate the expansion fund approved last year, Pakistan needs to run basic, maintain inflation and improve governance. So far, progress has been uneven. The targets of revenue have been lost and provincial surplus are not substances, yet its basic additional requirement has been fulfilled. It may be enough to unlock another period of funding, but it has little work to affect confidence. Earlier this year, a diagnostic mission highlighted weaknesses in tax collection, central banking and anti -money laundering rules. Problems remain intact.
The next IMF review will not be a final decision. It will be a checkpoint. Success will buy public time. Failure can deepen problems. Already for a government, already thin spread, the margin of error is dangerously small.
Even if compliance, the external environment provides little comfort. World growth is slowing down, trade is weak and tariff disputes are reducing demand. For Pakistan, which relies heavily on textile exports and remittances, it can also mean smaller arrival. One of the conditions of the IMF, increasing energy prices can help budget but hurt households and factories. Inflation can assure lenders, but it is at risk of public anger at home.
The crisis is not out of repair. However, Pakistan needs to take a decisive action. The first requirement is a sensible financial management that balances discipline with protection. Increasing the tax base, especially in agriculture and retail, can generate stable income. At the same time, simplicity cannot be allowed to terminate the social agreement. The target subsidy provided by the digital wallet can complete the poorest by rising prices.
The second is reorganization and flexibility. Discussing the terms of payment with bilateral borrowers can reduce immediate pressure and promote domestic loans markets can reduce dependence on foreign loan borrowing. More enthusiastically, climate financing should be achieved not as a charity, but as a recognition of global responsibility. The wealthy countries provided more than $ 115.9 billion to developing countries in 2022. One of the world’s most climate -driven countries, Pakistan will have to get a fair share.
The third priority is governance. Monitoring of MPs’ schemes, strict digital finance rules and timely release of budget strategy are not symbolic indicators. If both the federal and provincial governments show discipline, they can not only unlock the IMF’s financing but also gain investors’ confidence.
Pakistan’s trouble is difficult but not incredible. The IMF will continue to demand reforms. The challenge is to align those with national priorities. A strategy that connects financial tactics with climate flexibility can lead the country to an endless bailout and to sustainable recovery.
The irony is severe. A country suffering from climate change, which is largely caused by others, is now fined for trying to rebuild itself through markets. Every catastrophe increases financial costs. Each bailout increases debt. The IMF can provide stability, but it cannot break the cycle. For this, Pakistan needs political consensus on tax justice, institutional reforms and creativity so that its climate danger is benefited for green finance.
The next IMF review will not be a final decision but a checkpoint. Success will buy public time. Failure can deepen its problems. Already for a government, already thin spread, the margin of error is dangerously small.
Author Birmingham City University is a senior lecturer in the Finance of Finance, which is partnerships and apprenticeships in the Accountability, Finance and Economics.
