ISLAMABAD: The International Monetary Fund (IMF) has set key economic targets for Pakistan under its $7 billion, 37-month Extended Fund Facility (EFF) aimed at stabilizing the economy through fiscal reforms and promoting sustainable growth.
The IMF’s projections for fiscal year 2025 show GDP growth at 3.2 percent and inflation moderating to 9.2 percent, marking a significant recovery for the country.
On Wednesday, the IMF’s executive board approved the extended arrangement, which is expected to support Pakistan’s ongoing recovery from an economic crisis. The following Friday, Pakistan received over $1.027 billion as the first tranche of the bailout package.
According to IMF estimates, Pakistan’s economy is forecast to recover steadily in FY2025, with real GDP growth rising to 3.2 percent, up from 2.4 percent in FY2024. This growth is crucial for a nation of 236 million people with a per capita GDP of $1,572 as of FY2024.
Inflation, which has been a pressing concern over the past year, is expected to ease significantly. The IMF projects that average consumer price inflation, which stood at 23.4 percent in FY2024, will drop to 9.5 percent in FY2025. This disinflation has allowed the State Bank of Pakistan (SBP) to cut its policy rate by 450 basis points since June 2024.
The IMF estimates the unemployment rate at 8 percent for FY2024, is projected to gradually decrease to 7.5 percent by FY2025.
The IMF has emphasized the need for strong fiscal reforms to ensure long-term sustainability. Pakistan’s government revenue, including grants, is projected to rise from 12.6 percent of GDP in FY2024 to 15.4 percent in FY2025. The fiscal deficit (income-expenditure gap), including grants, is expected to narrow from 6.7 percent to 6.0 percent of GDP during the same period, while excluding grants, the deficit is projected at 6.1 percent of GDP for FY2025.
In a notable improvement, Pakistan’s primary balance (excluding grants) is expected to shift from a surplus of 0.9 percent of GDP in FY2024 to 2 percent of GDP in FY2025, a substantial turnaround from the 0.9 percent deficit seen in FY2023.
Public debt, which was 74.9 percent of GDP (excluding IMF obligations) in FY2023, declined to 67 percent in FY2024, is now projected to rise slightly to 69 percent in FY2025. External debt, which stood at 28.6 percent of GDP in FY2023, dropped to 22.6 percent in FY2024 and is projected to rise again to 24 percent in FY2025.
Pakistan’s current account deficit, which had shrunk from 1.0 percent of GDP in FY2023 to 0.2 percent in FY2024, is expected to widen again to 0.9 percent by FY2025. Foreign direct investment (FDI), which held steady at 0.5 percent of GDP in FY2024, is forecast to decline slightly to 0.4 percent of GDP in FY2025.
The IMF anticipates significant improvement in foreign exchange reserves, which are projected to rise from $9.38 billion in FY2024 to $12.76 billion by FY2025, covering 2.1 months of imports by the end of FY2025.
Energy sector reforms remain a critical component of the EFF program. The IMF has called for deeper cost-cutting measures and energy tariff adjustments to reduce circular debt and ensure the long-term viability of Pakistan’s energy sector. These reforms, along with state-owned enterprise (SOE) restructuring, are essential for improving efficiency and service provision in public utilities.
Despite short-term improvements, Pakistan faces deep structural challenges, including a difficult business environment and weak governance. The IMF has highlighted the need for broader tax reforms, including the removal of sector-specific exemptions and the inclusion of underrepresented sectors such as large-scale agriculture, industrialists, and developers in the tax net.
The program also underscores the importance of building resilience to climate change through sustainable investments and improved infrastructure. Strengthening anti-corruption frameworks and governance reforms will be crucial in fostering a more competitive economy.
As part of its fiscal reforms, the IMF has urged Pakistan to continue improving its tax base and strengthening federal-provincial fiscal arrangements. Ensuring fiscal sustainability through sound macroeconomic policies is seen as essential for promoting long-term economic growth and stability.
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