The International Monetary Fund (IMF) has adjusted its economic projections for Pakistan, providing a comprehensive review in its latest report. The key highlights include a downward revision of inflation forecasts and a moderated economic growth projection for the fiscal year 2024 (FY24).
According to the IMF’s first review report, the inflation forecast for Pakistan has been revised down to an average of 24 per cent in FY24, showing a decline from the earlier projection of 25.9 per cent.
This adjustment is attributed to the easing of food and energy prices, although the November gas tariff increase is expected to contribute to headline inflation in the coming months. Despite this, gradual declines are anticipated due to lower core inflation and recent movements in commodity prices.
The year-end inflation is projected to be 18.5 per cent in FY24 and further decrease to 9 per cent in FY25, as outlined in the report.
Conversely, the IMF has lowered its economic growth projection for Pakistan to 2 per cent in FY24, down from the initial estimate of 2.5 per cent. The revision reflects weaker domestic demand despite positive base effects from flood recovery, particularly in agriculture and the textile sector.
The report emphasised that continued external challenges, along with tight fiscal and monetary policies, are expected to dampen consumption and private investment.
The current account deficit (CAD) for FY24 is forecasted at $5.6 billion (1.6 per cent of GDP), below the previously projected $6.5 billion in the SBA Request. The import rebound is expected to be more restrained due to weakened domestic demand, while exports and remittances are also anticipated to be subdued.
IMF staff anticipates the CAD to remain around 1.5 per cent of GDP over the medium term, reflecting efforts to rebuild reserves and a market-determined exchange rate consistent with sustainability.
Despite a notable improvement in market sentiment since June, the IMF pointed out that risks to debt sustainability remain acute. Large gross financing needs and limited external financing pose challenges, and the global lender stressed that any policy slippages or insufficient financing could jeopardise the path to debt sustainability.
Furthermore, the IMF highlighted that external financing risks are exceptionally high, and delays in the disbursement of planned financing from international financial institutions or bilateral partners could pose significant threats to the government’s programme, given limited buffers. This could lead to an increased reliance on expensive domestic financing, potentially crowding out private credit.
In addition to economic concerns, the IMF warned that political tensions ahead of the upcoming elections may impact policy decisions and reform implementation, adding another layer of uncertainty to Pakistan’s economic outlook.
The IMF concluded that while public debt could remain sustainable with decisive programme implementation and adequate financing, downside risks remain exceptionally high for the country, necessitating careful attention to policy measures and external support.
