Four years on since the infamous default episode, the economic engines are churning out hope again. Subtle signs of progress appear, but it’s unclear whether they are tangible or merely a mirage of fictional growth, lingering just long enough for economic prudence to stray from rationality.
The scepticism is not unfounded; rather, it owes much to the vivid memories of boom-bust cycles haunting us from inception. Nonetheless, from the brink of despair, Pakistan has borrowed enough determination to keep the indicators from falling out of proportion.
GDP growth of 3.7 per cent in the last fiscal year, although modest, was the highest recorded since 2022. The current account deficit has been sliced down to $98 million as of August 2026, while the foreign exchange reserves of the central bank have reached an all-time high of $21.4 billion as per its website. The market rates seem relatively stable, at least for now, providing much-needed impetus for the brittle industries to find their way again.
And on top of that, Pakistan is traversing through a period of sustained political stability, which has culminated in several trade and investment pacts with foreign countries such as UAE, Canada, Uzbekistan, Turkiye, Azerbaijan etc. The default hysteria has long faded. But alas, somebody must play the Devil’s advocate. Let me do the honours.
Our chequered history shows that the question of trade-offs has always been the Achilles heel for decision-makers
One simply cannot underestimate the effervescence of geopolitical crises and their impact on global commodity prices. Previously, the Russia-Ukraine war took its toll on our economy. Coupled with the devastating floods of 2022, it nearly pushed us towards a severe economic crisis (headline consumer price index recorded at 37.97pc in May 2023).
Just as we were convalescing from the aftermath, we found ourselves in the heat of yet another international quarrel, the US-Iran conflict. The inflation rate in Pakistan jumped to 11.1pc year-on-year in August 2026, as per the latest Pakistan Bureau of Statistics (PBS) report. Brent crude is hovering above $100 at the time of writing, and the shortage of LNG is already evident, owing to Hormuz disruptions. Is it Groundhog Day all over again?
Pakistan has been at the crossroads numerous times, a prisoner of its own policy. A simple yet peculiar choice between long-term optimal growth and short-term economic combustion, but seldom has it given two cents to adequacies of reason. We have time and again fallen prey to the temptation of excessive spending in order to justify the frailties of our growth objectives, all while romanticising life as a bed of roses for those struggling to make ends meet.
For example, let’s look at the budget figures of FY27 published by the Finance Division for instance. The total federal expenditures are budgeted to be around Rs18.7 trillion, with an expected fiscal deficit of almost Rs7.02tr. Almost Rs1.09tr is set aside for different subsidies, and Rs3tr for the defence budget; the numbers don’t align well for a country addicted to the crumbs offered by the International Monetary Fund.
Our chequered history tells us that the question of tradeoffs has always proved to be the Achilles heel for those carrying the burden of decision-making. The uncertainty is etched in our precedent, with an ever-present air of impulsiveness walking hand in glove with our fiscal discipline.
In fact, let me take you on a stroll down memory lane. From 2002-2005, Pakistan had a boom on the back of liberalisation policies with a GDP growth of 8pc. The ecstasy was short-lived as Pakistan experienced a bust afterwards, witnessing the slow death of GDP growth to 1.1pc by 2009, the raison d’etre being fiscal pressures and circular debt. The norm became more apparent, as the years of low growth and recovery eventually channelised into a boom in the summer of 2018 (6.1pc GDP growth).
What followed is easier to predict than the climax of an Alfred Hitchcock movie: a bustright on cue, with GDP growth sinking to -0.9pc by 2020. Just when the post-Covid recovery commenced, another bustloomed large, causing the economy to stagnate in 2023, owing mostly to political instability and record inflation.
We have stumbled upon a critical juncture yet again. To spend or not to spend, a fabricated version of Shakespeare’s famous words to lend my critique some legitimacy. The tug of war between fiscal spending and fiscal restraint would only expedite the inevitable: a malignant dependency on foreign creditors. One can only surmise that if global commodity prices continue to surge, we will have no one to blame but ourselves and our lack of foresight.
Enough with the morbidity from my side. I mean, if the experts are saying our economy is treading in the right direction, who am I to burst the bubble with my naive extrapolations? And mind you, these are the same experts who have so admirably contributed in the past to making Pakistan the economic powerhouse it is today. It would be a treachery to take my word over theirs.
The writer is a policymaker and currently working at the State Bank of Pakistan
Published in Dawn, The Business and Finance Weekly, September 28th, 2026
