Zafar Iqbal
International rating agency Moody’s has recently sounded a stark warning regarding the escalating risk of social unrest in Pakistan, attributing this threat to the tightening conditions of multilateral financing. The agency highlighted that in the first quarter of fiscal year 2025 (FY25), interest payments accounted for a staggering 40 percent of total government expenditure, signaling an alarming trend of growing debt servicing obligations. This is a clear indication of a looming economic crisis, and as the country grapples with a mounting fiscal deficit, Pakistan’s debt burden is quickly becoming unsustainable.
The crisis is not just a result of external shocks but rather stems from years of political patronage, mismanagement, and reckless financial decisions by successive governments. These decisions, which include irrational spending close to election periods and the poorly designed 7th National Finance Commission (NFC) award, have contributed to the current financial quagmire. The 7th NFC award, which allowed for an overwhelming share of federal resources to be allocated to provincial governments without addressing corresponding liabilities, has left the federal government bearing the entire debt repayment burden. This has placed a heavy strain on federal taxes, which are already underperforming due to low tax compliance rates across the country.
The consequences of this fiscal mismanagement are now being felt by ordinary Pakistanis. Higher government debt has triggered inflationary pressures, eroding the purchasing power of the masses, particularly the poor and middle classes. The increased cost of living has led to a reduction in the real income of citizens, making it difficult for them to maintain their previous lifestyles. Inflation, which has been a persistent problem for the past few years, doubled food prices during the period of FY21-24, and the country saw inflation rates surpass 20 percent for two consecutive years. While inflation is now beginning to slow, the real income growth for most people remains stagnant, as the country’s economic growth is barely able to match the pace of its population growth.
The IMF’s recent revision of Pakistan’s growth forecasts further emphasizes the challenging road ahead. The IMF now anticipates that Pakistan’s GDP will grow at a rate of only 4.5 percent by FY28, a sharp downgrade from the previous forecast of 5 percent growth by FY26. With such a meager growth trajectory, GDP per capita is unlikely to rise at a meaningful pace, which will severely hinder any potential improvements in the standard of living for ordinary Pakistanis. As the country struggles with stagnant growth and high inflation, the gap between the rich and the poor is widening, leading to increasing inequality and growing discontent among various segments of society.
The situation is exacerbated by the government’s failure to address the underlying structural issues. One of the most significant of these issues is the inefficiency of Pakistan’s energy sector. The country is burdened with an oversized capacity of independent power producers (IPPs) that drain the economy. Despite the clear need for reform and optimization of the energy sector, the government has continued to allow inefficiencies to persist, adding to the economic burden. These inefficiencies, combined with rising energy costs, make life even harder for ordinary citizens, who are already struggling with high inflation and reduced purchasing power.
Moreover, the situation has been worsened by the political instability that has gripped Pakistan. The government, which came to power through a controversial general election, has faced widespread accusations of election rigging. This perception of a stolen mandate has fueled public anger and resentment, with many citizens feeling increasingly alienated from the ruling elite. Political leaders, instead of addressing the economic and social challenges facing the country, continue to indulge in lavish spending and maintain extravagant lifestyles. There is no visible sign of austerity among the political class or the establishment, and no genuine effort to reform inefficient government structures or address the problem of tax evasion.
This lack of political will to address systemic issues is a major contributing factor to the growing unrest in the country. The government’s failure to implement meaningful reforms has left Pakistan in a precarious position, with increasing pressure on social services, growing unemployment, and widespread disillusionment among the youth. As inequality widens and tax compliance remains a distant goal, the frustration among ordinary citizens is palpable. The middle class, once considered the backbone of Pakistan’s economy, is shrinking, and the most marginalized members of society are becoming even more vulnerable.
Adding to the tension, the government has been forced to take extreme measures to suppress dissent. Security forces have resorted to shutting down roads and internet services in an attempt to prevent protests and maintain order. However, these heavy-handed tactics have only served to amplify the anger of the masses. The government’s focus on controlling public dissent through censorship and repression, rather than addressing the root causes of the protests, has created a volatile situation. Such actions only deepen the disconnect between the ruling elite and the people they are supposed to serve.
The IMF’s warnings about the external financing gap and the need for Pakistan to maintain a primary fiscal surplus for several years to meet its obligations are indicative of the long road ahead. The government’s attempts to comply with IMF conditions, such as maintaining fiscal discipline and reducing the budget deficit, will undoubtedly lead to more pain for the public. The implementation of austerity measures and the need for further tax hikes are likely to push more people into poverty, further fueling social discontent. As growth stagnates, unemployment rises, and the cost of living continues to rise, the risk of social unrest remains high.
The situation is indeed a ticking time bomb. Pakistan’s economic policies are unsustainable, and the country’s social fabric is beginning to tear under the strain. The political elite must act decisively to address the deep-rooted issues within the economy. Without meaningful reforms, Pakistan faces the prospect of a prolonged economic stagnation that could lead to widespread social unrest. As history has shown, ignoring the people’s call for change only leads to greater instability, and the risk of violence becomes increasingly inevitable. The government must find a way to address the grievances of the people, or else the consequences could be dire.
In the words of John F. Kennedy, “Those who make peaceful revolution impossible will make violent revolution inevitable.” The Pakistani state must heed this warning and take immediate action to rectify the situation before it spirals out of control.
