Islamabad – The International Monetary Fund (IMF) has projected Pakistan’s economic growth to reach 3.2% for the fiscal year 2024-25, marking an improvement from the 2.4% growth achieved in the previous fiscal year. This optimistic forecast comes as part of the IMF’s latest assessment following the approval of a $7 billion Extended Fund Facility (EFF) programme aimed at stabilizing Pakistan’s fragile economy.
The IMF highlighted that Pakistan’s economic rebound is contingent on broad structural reforms, including revenue mobilization, fiscal consolidation, and improved governance. In its report, the Fund emphasized the importance of increasing revenue by broadening the tax base, removing sector-specific tax exemptions, and placing a fairer tax burden on sectors that have historically been undertaxed, such as large-scale agriculture and developers. By doing so, the IMF believes Pakistan can create fiscal space for critical investments in human capital, infrastructure, and social services, while also enhancing fairness and efficiency within the tax system.
One of the key positive projections is a sharp decline in inflation. After peaking at 23.4% in the previous fiscal year, inflation is expected to drop significantly to an average of 9.5%. The reduction in inflation will provide relief to consumers and businesses alike, potentially leading to a more favorable environment for economic growth and investment. Unemployment is also expected to decrease slightly, from 8% to 7.5%, reflecting a modest improvement in job creation.
Despite the positive outlook, the IMF warned that significant structural challenges remain. Masato Okamura, the IMF’s Deputy Managing Director and Acting Chair, noted that while Pakistan’s economic stability has improved, thanks to sound policy decisions over the past year, more ambitious and sustained efforts are needed to strengthen the country’s resilience and long-term growth prospects.
Okamura highlighted the critical need for continued fiscal consolidation, emphasizing that reforms should focus on improving fiscal institutions, enhancing public spending efficiency, and ensuring debt sustainability. The IMF stressed that any policy slippages could undermine Pakistan’s debt reduction efforts, particularly given the ambitious growth projections.
The Fund also noted that energy sector reforms remain essential. Although timely energy tariff adjustments under the previous programme have helped stabilize Pakistan’s energy sector, further deep cost-side reforms are necessary to ensure the sector’s long-term viability and reduce overall costs.
The IMF also recommended maintaining a tight, data-driven monetary policy to keep inflation under control. It advised that the State Bank of Pakistan (SBP) should continue managing exchange rate fluctuations effectively, allowing the currency to act as a buffer against external shocks.
To address Pakistan’s long-standing structural challenges, the IMF urged faster implementation of reforms targeting low productivity, economic openness, and climate vulnerability. These include advancing the State-Owned Enterprises (SOE) reform agenda, promoting competition in the private sector, and removing market distortions that hinder economic growth. The IMF also stressed the importance of strengthening anti-corruption frameworks and building climate resilience through effective policy implementation.
Another area of concern is Pakistan’s budget deficit. Although the IMF projects a reduction in the deficit to 6.1% of GDP from last year’s 6.8%, the country’s debt-to-GDP ratio is expected to rise from 69.2% to 71.4%. This underscores the need for Pakistan to implement prudent fiscal management strategies to curb the growth of government debt.
On the external front, the IMF forecast an improvement in Pakistan’s foreign exchange reserves, which are expected to reach $12.75 billion by the end of the fiscal year. This will offer some relief to Pakistan’s external sector, which has struggled with pressure from external debts and trade imbalances.
While the IMF’s projections provide some optimism for Pakistan’s economic recovery, they come with a cautionary note: success hinges on the country’s ability to implement comprehensive and sustained reforms. By addressing deep-rooted structural challenges, enhancing fiscal sustainability, and fostering a more competitive business environment, Pakistan can pave the way for durable, inclusive growth. However, the road ahead remains challenging, with high risks and a narrow margin for error.
