Pakistan experienced an economic crisis beginning in late 2021 during the premiership of Imran Khan in the aftermath of the COVID-19 crisis, further intensified by the effects of the 2022 Russian invasion of Ukraine, political unrest in the country, and devastating floods in 2022. It caused severe economic challenges for years, including surging inflation causing food, gas, and oil prices to rise; fuel shortages; a substantial weakening of the rupee; and a balance-of-payments crisis caused by declining foreign reserves. Chronic poor governance and low productivity per capita contributed to the crisis, leaving the country unable to earn enough reserves to fund its imports. In February 2023, foreign reserves held by the state bank declined to an all-time low, covering just over two weeks of imports, while in May 2023, Pakistan's inflation rate reached 37.97%, the highest level ever recorded.
Pakistan's economic crisis served as the biggest crisis since its independence. It was on the verge of a sovereign default in early 2023 for the first time in its peacetime history. The Russian invasion of Ukraine drove up fuel prices worldwide, leading to a global energy crisis. Excessive external borrowing by Pakistan over the years raised the spectre of default, causing the Pakistani rupee to rapidly fall in value and making imports more expensive in relative terms. Fuel shortages and surging inflation in late 2021 contributed to the crisis, and by June 2022, inflation was at an all-time high, along with rising food prices. The 2022 Pakistan floods exacerbated the crisis and caused major economic losses worth $30 billion. The national poverty rate rose significantly as a result of the crisis, going from 21.9% in 2018–2019 to 28.8% in 2024–2025, an increase of about 6.9%.
As of 2025, the Pakistani economy is showing signs of gradual macro-economic recovery and stabilization. In June 2025, Pakistan led emerging markets to become the most-improved country in sovereign credit risk, seeing a 12% decline in default risk. In April 2025, the headline inflation rate hit a historic low of 0.3%, the lowest in Pakistan's history, primarily due to declining global commodity and energy prices, a stable exchange rate, a high base effect, recovering foreign reserves, and tight monetary policy. Total foreign reserves held by the state bank rose to a record high of $16.055 billion in January 2025, and the Pakistani rupee has stabilized at around 280 rupees per dollar since 2023.
Background Pakistan's debt has significantly increased over the past two decades. In 2000, Pakistan's gross public debt was Rs. 3.1 trillion (~$50 billion). By the time the regime of Pervez Musharraf ended in 2008, that number had almost doubled to Rs 6.1 trillion. Successive Pakistani governments largely continued this trend; the Imran Khan government further increased Pakistan's debt by 77% in less than four years, with public debt standing at Rs. 44.3 trillion by the time its tenure ended in April 2022. While debt increased around 14% per year on average, GDP grew only 3 percent per year on average. This led to an unsustainable debt burden over time. In the fiscal year of 2022–23, the debt servicing obligations of Rs. 5.2 trillion exceeded the entire federal government's revenue. In 2022, Pakistan experienced a trifecta of challenges, as political unrest, economic crisis, and destructive floods gripped the nation. Economically, the country grappled with severe inflation, a declining currency, and critically low foreign reserves, posing significant concerns for its financial stability.
In the 2010s, Pakistan's high domestic consumption and demand, pegged rupee exchange rate, import-led growth, low inflation and increased government spending on infrastructure projects such as the China–Pakistan Economic Corridor (CPEC) led to a balance-of-payments crisis, as foreign exchange outflows increased rapidly.Multiple sources: This led the government of Pakistan to approach the International Monetary Fund (IMF) in October 2018, where it raised interest rates, depreciated the rupee and implemented tax measures in the 2019–20 federal budget to meet the preconditions of the IMF programme. In June 2019, the federal government and the IMF agreed on a $6 billion bailout package in a 39-month extended fund arrangement. Analyst Michael Kugelman called it a "political blow" for the government.
In January 2020, the IMF package was put on hold after Prime Minister Imran Khan "did not follow IMF recommendations to increase electricity prices and impose additional taxes". In 2021, the bailout programme was resumed after Pakistan agreed to the withdrawal of subsidies and tax exemptions, an increase in the petroleum levy, an increase in the energy tariff, and the auditing of COVID-19 relief funds.
After the government reintroduced fuel subsidies in February 2022, the Financial Times reported that analysts said the move could "undermine the IMF programme weeks after it restarted". The Business Standard reported that finance minister Miftah Ismail said that the subsidy package was "announced as a 'bomb' to destroy the country's economy for the next administration". Dawn reported that the IMF was not convinced by the government's justifications for the amnesty scheme and relief package, and the move led to the stalling of the $6 billion bailout programme.
During the Imran Khan government, increasing double-digit inflation led to growing political issues and deteriorating economic conditions. During Khan's government, Pakistan's total debt and liabilities increased by 80%, while during three quarters of fiscal year 2021–22, the trade deficit rose 70% to $35.4 billion. Due to high international oil prices, Pakistan's oil import bill increased by 95.9% to $17.03 billion in the last ten months of the Khan government. In February 2022, Pakistan posted its highest-ever monthly current account deficit of $2.55bn. In 2021, The Express Tribune said that the country's circular debt "almost doubled within three years" to Rs. 2.28 trillion "due to the government’s failure to stem systemic losses". According to Business Recorder, Pakistan's foreign reserves were built through a "flawed policy" of "heavier than ever reliance" on borrowing, equity and swap arrangements.
On 9 April 2022, Imran Khan was ousted in a vote of no confidence as the National Assembly elected opposition leader Shehbaz Sharif as prime minister two days later. The new finance minister, Miftah Ismail, said Pakistan would approach the IMF to resume the bailout package for "balance of payment support". Political instability worsened the country's economic condition; with further outflows from foreign reserves and currency devaluations occurring soon after the arrival of the Shahbaz Sharif government, the rupee hit an all-time low in May as well. To qualify for resuming the IMF programme, the government announced fuel price hikes. The Pakistani military, led by Field Marshal Asim Munir, also intervened to support the Sharif government's efforts to rescue the economy from crisis. The military also played a major role in setting up the Special Investment Facilitation Council (SIFC), an official body tasked with attracting foreign investment to support the economic recovery.
From June to October 2022, floods led to $40 billion in economic losses to the country; 33 million individuals were affected, 7.9 million were displaced, and 10.5 million people faced acute food insecurity. More than 1.2 million head of livestock were killed, 13,000 km of roads and bridges damaged, and 9.4 million acres of cropland were flooded. At the same time, the UNDP reported 9 million individuals "at-risk of being pushed into poverty on top of the 33 million affected".
Timeline
2021
In 2021, during the premiership of Imran Khan, Pakistan experienced surging inflation, reaching 12.3% in December, and a simultaneously weakening rupee. The country also experienced major fuel price hikes and acute gas supply shortages, with fuel supplies temporarily halted to industries and CNG stations during the peak of the gas crisis. Foreign reserves began declining significantly while debt to foreign bodies and countries, particularly China, rose substantially.
In January 2021, there was a natural gas shortage of 800 million cubic feet per day (mmcfd) and a shortage of 600mmcfd the next month. This led the Cabinet Committee on Energy to curtail gas supply to the transport sector. Dawn said that Pakistan was "on the verge of a massive gas crunch". Information Minister Fawad Chaudhry said that the country would "have no gas in years to come", stating that gas had been depleting 9% for the past two years.
Two state-owned companies announced the cessation of gas supply to industries in July due to shortages and dry-docking delays. Economic commentator Khurram Husain said it was "the third time in three years that liquefied natural gas imports will be mismanaged. This will impact not only gas supplies to consumers and industry but also the price of electricity, the country’s reserves and public debt and likely fuel further inflation." In October, no bidders responded to Pakistan LNG Ltd's December and January tenders, leaving a 400mmcfd shortfall. Amid the gas crisis, the government in November agreed to the costliest-ever liquified natural gas (LNG) import deal with Qatar Petroleum, priced at $30.6 per million British thermal units.
2022 Four days after being elected prime minister, Shehbaz Sharif was told by the Ministry of Energy that 27 power plants with a combined capacity of 7,000 MW were out-of-order due to shortages or lack of maintenance and repair.
Information Minister Maryam Aurangzeb told a news conference held on 19 May 2022 that Pakistan was committed to "controlling rising inflation, stabilizing foreign exchange reserves, strengthening the economy and reducing the country's dependence on imports". The import of unnecessary and luxury items was banned. Sharif had said at the time that the decision would "save the country's precious foreign exchange" and that Pakistan would have to "pursue austerity".
In late May 2022, the government lifted the cap on fuel prices - a condition for advancing the long-stalled bailout deal with the IMF. The IMF also insisted Islamabad raise electricity prices, ramp up tax collection, and make sizeable budget cuts.
Federal Minister for Planning and Development Ahsan Iqbal told reporters on 14 May 2022 that Pakistanis could reduce their tea consumption to "one or two cups" a day as imports were putting additional financial pressure on the government. "The tea we import is imported on credit", Iqbal said, adding that businesses should be shut down first to save electricity. According to the Observatory of Economic Complexity, the South Asian nation of 220 million is the world's largest tea importer, having bought more than $640 million worth of tea in 2020.
Inflation in Pakistan rose to 21.3% in June, the highest since December 2008, when inflation stood at 23.3%.
Finance Minister Miftah Ismail said that a loan of $2.3 billion from a Chinese consortium of banks had been credited to the Pakistani central bank's account in late June.
The 2022 summer floods caused over $30 billion in economic losses in Pakistan.
At the end of March 2022, the State Bank of Pakistan's reserves stood at $11.425bn, but they gradually tanked to an almost four-year low of $6.715bn on 2 December. Pakistan's foreign exchange reserves are equal to just five weeks of merchandise imports.
The consistent depreciation of the rupee is said to be deepening the economic crisis. At the end of March 2022, the rupee's value was at 183.48 to $1. It stopped at 224.40 on 9 December.
2023