Pakistan's repeated reliance on International Monetary Fund (IMF) bailout programmes has failed to deliver lasting economic reform, and a damning new analysis published in Dawn argues the more pointed question is not why reform failed — but whether it was ever designed to succeed. The report, dated 20 June, lays out a structural case for why Pakistan's economic distortions persist despite decades of IMF intervention.

The IMF Cycle That Never Breaks

Each IMF programme, the report argues, arrives at an identical diagnosis: the tax base is too narrow, distortions are too many, and institutions are too weak. Yet the outcome is always the same. Dawn's report quotes the pattern bluntly: 'The IMF prescribes, Pakistan implements, and the programme ends. And then, after a brief interval, another programme begins with the same diagnosis and the same prescription.'

This is not a failure of technocratic execution, the report contends — it is a feature, not a bug, of Pakistan's political economy.

The Acemoglu Framework: Power, Not Policy

The report draws on the work of Nobel-recognised economist Daron Acemoglu to explain the persistence of dysfunction. As the report cites him: 'In his theory, the puzzle of persistent underdevelopment dissolves once you accept the premise that groups holding political power choose policies, not to maximise aggregate welfare, but to transfer resources from the rest of society to themselves.'

The rules that emerge from such systems are inefficient by design — because the groups that benefit from inefficiency are precisely those with the power to write the rules. Pakistan, the report argues, is a textbook case of this dynamic.

Petroleum Levy: A Tax That Bypasses Provinces

The report flags the petroleum levy as the Pakistan government's primary revenue instrument, with the IMF now targeting Rs 1.7 trillion in levy collection for the 2026 budget — even as the IMF's own data shows the effective tax rate on petroleum products in Pakistan stands at 166 per cent.

Critically, the petroleum levy does not enter the divisible pool, meaning provinces — and the populations they serve — receive no share of the proceeds. 'This is a structural choice that concentrates fiscal resources at the federal centre while the costs are borne by everyone who buys fuel, which is everyone,' the report states. This design, critics argue, is not an administrative oversight but a deliberate fiscal architecture.

Salaried Class Bears the Burden, Traders Escape

Withholding tax deducted from salaries surged to Rs 605.6 billion in 2024–25, even as traders, landlords, and large retailers remain largely outside the effective tax net. The report is unsparing in its assessment: 'This is not because the state lacks the administrative capacity to reach them, but because they are sufficiently proximate to those who are the decision-makers. The salaried professionals are taxed because they can be.'

This structural inequity compounds the fiscal crisis — the same crisis that forces the government to borrow at high interest rates, deepening the debt spiral that IMF programmes are ostensibly designed to break.

Human Cost of Perpetual Reform Failure

Despite multiple IMF programmes spanning decades, Pakistan ranks 168th on the Human Development Index — below countries with a fraction of its economic history, natural endowment, and demographic potential. The report's conclusion is stark: without a fundamental redistribution of political power, the reform cycle will simply repeat, with the same diagnosis, the same prescription, and the same outcome.

Whether Pakistan's current IMF programme — or any future one — can break this pattern remains, according to the report, an open and deeply political question.