SYEDA NIDA BATOOL
Pakistan is once again being discussed as a diplomatically relevant state. Its role in regional mediation, its continued importance and simultaneous relations with all power centers is being presented as signs of its foreign policy success. There is truth in this. Pakistan’s geography, its security role, and access to different regional actors matter. However, diplomatic relevance should not be confused with national strength. In the case of Pakistan, diplomatic relevance is more of a survival strategy, not a victory.
A state that is economically secure can use diplomacy to expand influence. But a state under debt pressure uses diplomacy to avoid isolation. Pakistan today falls closer to the second category. It is not cashing its geography because it has the luxury of strategic ambition. It is doing so because its economic vulnerability leaves it with limited choices.
Pakistan’s dependence on the IMF is central to this story. According to PIDE, Pakistan entered its first Stand-By Arrangement with the IMF in 1958 and has spent around 34 of the following 65 years under IMF programmes. This long relationship has created a familiar cycle: reserves fall, the country turns to the IMF, reforms are promised, temporary relief arrives, and then the same structural weaknesses return. The post-2019 period has made this cycle more painful. Because IMF imposed heavy conditions on Pakistan in the form of fiscal tightening, broaden the tax base, reform the energy sector, and maintain exchange-rate flexibility. These are not abstract economic terms. They are felt by ordinary citizens through higher utility bills, inflation, taxation, and a weaker rupee.
The pressure becomes clearer when the data is traced over time. From FY2018–19 to FY2025–26, Pakistan’s real GDP growth remained unstable: 3.12 percent in FY2018–19, -0.94 percent in FY2019–20, 5.77 percent in FY2020–21, 6.18 percent in FY2021–22, -0.21 percent in FY2022–23, 2.62 percent in FY2023–24, 3.18 percent in FY2024–25, and a provisional 3.70 percent in FY2025–26. These trends are supported by the Pakistan Bureau of Statistics national accounts and the Ministry of Finance’s Pakistan Economic Survey 2025–26. During the same period, FBR tax collection rose from Rs3,828.5 billion in FY2018–19 to Rs11,744.3 billion in FY2024–25, according to the FBR Revenue Division Year Book 2024–25, while the FY2025–26 revised estimate was placed at Rs12,983 billion in the Federal Budget in Brief 2026–27. Yet this increase did not reflect a consistently strong economy. The FBR tax-to-GDP ratio remained between 8.4 and 9.2 percent for much of the period, before rising to 10.3 percent in FY2024–25, as shown in the FBR Year Book 2024–25. The pattern is clear: Pakistan’s fiscal effort has increased faster than its productive economic recovery. On paper, this suggests improved revenue mobilization. In society, it means heavier pressure on households and businesses operating within a narrow and uneven tax base.
Debt pressure tells the same story. Pakistan’s Debt Policy Statement 2026 shows that total debt of government increased from 61.8 percent of GDP in June 2024 to 64.3 percent in June 2025, while total public debt rose to 70.7 percent of GDP by June 2025. The rupee’s weakness has deepened the problem. State Bank of Pakistan data show that the annual average exchange rate moved from Rs158.03 per US dollar in FY2019–20 to Rs279.35 in FY2024–25, while daily January 2026 data were around Rs280 per US dollar in the SBP Monthly Statistical Bulletin. This makes imports, fuel, and external debt servicing more expensive in local currency.
The latest federal budget makes the constraint even clearer. The Federal Budget in Brief 2026–27 places total federal expenditure at Rs18.771 trillion. Out of this, interest payments alone are budgeted at Rs8.054 trillion, defence affairs and services at Rs3 trillion, pensions at Rs1.169 trillion, subsidies at Rs1.091 trillion, and federal PSDP at Rs1 trillion. In simple terms, debt servicing consumes nearly 43 percent of federal expenditure, while defence takes around 16 percent. Together, the two absorb almost 59 percent of the federal budget.
This is the fiscal reality behind Pakistan’s foreign policy. The state is trying to remain relevant while its budget is dominated by debt servicing. The same Budget in Brief 2026–27 shows that federal development spending remains limited when compared with debt servicing and defence. That is not the profile of a state enjoying full strategic freedom. It is the profile of a state trying to balance survival, security, and solvency at the same time.
This is why Pakistan’s diplomatic activism must be read carefully. When Pakistan stays relevant in Iran or Afghanistan, it is ensuring that major powers cannot ignore it. When it maintains close relations with China, Saudi Arabia, and the UAE, it is not only pursuing strategic partnerships; it is also protecting financial lifelines. The IMF’s 2024 Article IV and EFF report states that continued financial support from Pakistan’s bilateral and development partners is critical for the programme, and the Pakistani authorities specifically acknowledged external financing support from Saudi Arabia, China, and the UAE. This is not ordinary diplomacy. It is economic survival conducted through foreign policy.
Pakistan’s visibility in regional crises could also be understood in this light. Mediation gives Pakistan attention, access, and relevance. It allows Islamabad to show that it remains useful despite economic weakness. But mediation does not pay debt. It does not stabilize the rupee. It does not reduce inflation. It does not create fiscal space for education, health, or development. The austerity measures introduced during periods of fiscal and energy pressure made this reality painfully clear. Official federal documents, including Finance Division’s austerity measures for FY2025–26 and Cabinet Division’s additional austerity measures, show restrictions on official expenditure, work-from-home and four-day workweek proposals, and cuts in fuel provision for official use. A country that has to cut working days, fuel usage, and operating expenditure is not operating from a position of economic confidence.
This does not mean Pakistan’s diplomacy has no value. It does. Pakistan geography is an asset. Its regional access is an asset. Its tremendous security relevance and military strength is an asset. But these assets are being used defensively. Pakistan is not converting diplomatic relevance into structural economic strength. It is using diplomatic relevance to buy time. That is the real danger. Pakistan may mistake visibility for resilience. It may assume that because it remains useful to others, it can postpone deeper reforms at home. But strategic relevance alone cannot rescue an economy forever. It can attract attention, delay pressure, and create temporary breathing space. It cannot replace exports, productivity, tax reform, industrial growth, or fiscal discipline. The lesson is simple: geography can keep Pakistan in the game, but it cannot win the game for Pakistan. Diplomatic relevance may buy time, but only economic reform and more earning hands can buy freedom. Until Pakistan builds real economic resilience, its foreign policy will remain active but constrained, visible but fragile, and relevant because it cannot afford to be irrelevant.
*Author : Syeda Nida Batool, M. Phil Researcher*
*National Defence University, Islamabad*
