The International Monetary Fund (IMF) has projected an improvement in Pakistan’s economic outlook following the approval of a $7 billion loan package.
In its latest report, the IMF predicted an acceleration in economic growth, a reduction in inflation, and a decrease in unemployment. However, the Fund emphasized that despite these improvements, Pakistan’s economy faces significant challenges that require comprehensive reforms.
According to the IMF, Pakistan’s economic growth rate is expected to rise to 3.2% in the current fiscal year, compared to 2.4% in the previous year. The report also forecasts a sharp decline in inflation, with the average rate projected to fall from 23.4% to 9.5%. Unemployment is expected to decrease from 8% to 7.5%.
Despite these optimistic predictions, the IMF noted that Pakistan's budget deficit remains a concern. The deficit could reduce to 6.1% of GDP from last year’s 6.8%. However, government debt, including loans from the IMF, is projected to rise, with debt-to-GDP increasing from 69.2% to 71.4%.
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Crude foreign exchange reserves are expected to improve, reaching $12.75 billion by the end of the fiscal year, providing some relief to Pakistan’s external sector. The IMF emphasized the need for continued reforms in the energy sector and fiscal management to ensure sustained economic growth.
In a statement following the IMF Executive Board meeting, Deputy Managing Director and Acting President Kenji Okamura highlighted several areas where Pakistan needs to focus. He stressed the importance of expanding the tax base to increase revenue, particularly targeting industrialists, developers, and large landowners who currently enjoy low-tax burdens.
He also called for an end to special sector exemptions and the inclusion of all sectors, including agriculture, under the tax net. He stressed that foreign exchange reserves should continue to rise.
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Okamura also underscored the importance of improving governance, strengthening anti-corruption institutions, and ensuring effective public investment management. "Energy sector reforms must continue. Sustained economic growth requires continuous efforts and reforms," he noted.
The report noted that last year's policies played a crucial role in stabilizing the economy, restoring growth, and easing external pressures, but warned that continuous efforts are needed to maintain progress. Those policies also helped reduce short-term risks and restore confidence.
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Last year, he noted, the foreign exchange reserves increased and inflation recorded a significant decrease. "Federal and provincial administrative arrangements need to be strengthened, and the tax system improved," the official suggested.
Reforms in the energy sector, particularly timely adjustments in tariffs, were recognized for helping to stabilize Pakistan’s circular debt. The IMF suggested that a reduction in inflation could also lead to a decrease in the policy rate, and urged the State Bank of Pakistan to maintain a tight monetary policy to ensure financial stability.
In conclusion, the IMF official reiterated that sustained economic growth will require prudent spending, enhanced revenue collection, and reforms in government institutions. This, he said, would create the necessary resources for investment in human capital, infrastructure, and social programs, all of which are critical for Pakistan’s long-term economic stability and prosperity.
