Karachi, November 2, 2024 – Pakistan’s economy appears to be on a path of gradual stabilization, supported by the new International Monetary Fund (IMF) program, according to analysts at Topline Securities Limited. With significant improvements in external accounts, a sharp decrease in inflation, and fiscal consolidation, analysts suggest that while the growth outlook remains modest, the country’s economic fundamentals are strengthening.
Despite slower growth prospects, particularly in the agriculture sector, analysts point to encouraging external account stability. The IMF program has played a pivotal role in stabilizing Pakistan’s foreign reserves, leading to a more manageable financing landscape. Governor of the State Bank of Pakistan (SBP) recently projected that net external repayments, excluding rollovers and refinancing, will total $10 billion for the fiscal year 2024-25. With the current account deficit expected to hover around $1.3 billion, the gross financing need (excluding rollovers and refinances) is estimated at $11.3 billion, a figure deemed manageable within the current fiscal framework.
Notably, Pakistan’s gross external financing requirement has reached a nine-year low, at $18.8 billion, according to IMF reports. This lower financing burden reflects an improved external position, which has not gone unnoticed by global credit rating agencies. In a promising sign, Fitch Ratings upgraded Pakistan’s long-term issuer rating to CCC+ on July 29, 2024. Subsequently, Moody’s followed suit on August 28, 2024, with an upgrade to Caa2. Analysts at Topline Securities anticipate further upgrades as Pakistan’s foreign exchange reserves strengthen, potentially facilitating access to international capital markets for long-term funding in the years to come.
Projections indicate that Pakistan’s liquid foreign exchange reserves could reach $13 billion by June 2025, marking the highest level since March 2022. This boost is attributed to the successful completion of the previous Standby Arrangement (SBA) and the inception of the new IMF program, which is expected to unlock additional funding from bilateral and multilateral sources. The Pakistani rupee has appreciated by 2.6% in FY24 and an additional 0.3% in the current fiscal year, reflecting external account stability and increased capital inflows. Analysts foresee the PKR/USD exchange rate stabilizing between 277-282 by June 2025 and potentially between 295-300 by June 2026.
Pakistan’s inflation has also experienced a substantial decline, averaging 7-8% in the current fiscal year after reaching a peak of 23.4% in the previous fiscal year. This marked decrease in inflation is attributed to a higher base effect, food price disinflation, and reduced fuel costs in September and October 2024. As a result, policy rates are anticipated to decline further, with analysts expecting a reduction to 12.5-13.5% by June 2025 from the current 17.5% rate, down from the 22.5% peak in June 2024. Currently, the 6-month Karachi Interbank Offered Rate (KIBOR) and 6-month Treasury bill rates are trading at 13.43% and 12.87%, respectively—well below the policy rate and reflecting market anticipation of continued monetary easing.
While economic growth is projected to remain moderate, analysts forecast a 2.5-3.0% real GDP growth for FY25. This growth is expected to be driven largely by the services sector, supported by a gradual economic resurgence. However, the agricultural sector, which posted a robust 6.4% growth last fiscal year, is forecasted to slow down significantly, with an expected growth of only 1% in FY25 due to weak cotton and wheat crop outlooks.
In sum, Pakistan’s economic landscape appears to be stabilizing under the IMF framework, with improved external indicators, declining inflation, and fiscal consolidation. While challenges remain, particularly in agriculture, the outlook for Pakistan’s economy is increasingly optimistic, buoyed by strong policy support and international confidence in its financial reforms.
