Key takeaways
- Domestic choices, not the IMF, decide who bears the cost of adjustment.
- Improving macro indicators hide falling household purchasing power.
- Indirect taxes and energy pass-through fall hardest on documented earners.
- A shrinking middle class weakens demand, human capital and tax compliance.
- Shift taxation towards assets and make subsidies income-responsive.
In this Minute Mirror column (January 2026), Dr. Ghulam Mohey-ud-din argues that Pakistan’s most serious crisis is distributional. The middle class is being squeezed by the way stabilisation has been designed, and that erosion now threatens growth itself.
The argument
Many Pakistanis blame the IMF for their hardship. The column points out that the Fund sets targets, but domestic policy decides how the burden of meeting them is shared. The macroeconomic numbers have improved, with stronger reserves and a smaller current-account deficit, yet households face falling purchasing power, unaffordable utilities, rising rents and stagnant wages.
The reason is regressive design. Adjustment has leaned on indirect taxes, energy price pass-through and heavier compliance for documented sectors, while the informal economy stays lightly taxed and elite exemptions survive. The poorest receive some protection through cash transfers. Salaried workers, small business owners, teachers, engineers and freelancers do not. Energy tariffs ripple into the cost of transport, food, healthcare and housing, and insecure employment amplifies the pressure.
The effects compound. Skilled people emigrate, consumer demand weakens, and tax compliance falls as people lose faith in fairness. A shrinking middle class also means less saving, less investment in children’s education and fewer new businesses. In the author’s words, the crisis is not ideological or external but domestic and distributional.
What needs to change
- Move taxation towards assets rather than transactions.
- Widen the tax base instead of deepening the burden on existing taxpayers.
- Make subsidies responsive to income rather than politically convenient.
- Pair energy reform with productivity gains so that adjustment is not simply punitive.
- Discuss openly who pays for adjustment.