IMF Cuts Pakistan’s GDP Growth Forecast to 2.6%

ISLAMABAD: The International Monetary Fund (IMF) has reduced Pakistan’s GDP growth to 2.6 percent for the fiscal year 2024-25, down from 3.2 percent in

IMF Cuts Pakistan’s GDP Growth Forecast to 2.6%

, citing lower activity in the first half and broader global uncertainty.
The Fund’s most recent report, “First review under the Extended Fund Facility (EFF) arrangement, requests for modification of performance criteria, and request for an arrangement under the Resilience and Sustainable Facility (RSF)”, noted; 2.5 percent GDP growth in fiscal year 2024, growth slowed somewhat in H1, recording 1.3 percent and 1.7 percent (yoy) in fiscal years Q1 and Q2, respectively, reflecting lower yields from the major Kharif crops and still-subdued industry.

Current expenditure was 18.9 percent of GDP as per the Fund program, and the current projection is the same (even though the growth has been downgraded from the program projection). The projection for next year is 17.8 percent, but this will be realized only if the projected growth rate of 3.6 percent is met.

The Public Sector Development Program was predicted at 2.3 percent of GDP under the Fund program this year, but the projection has been raised to 2.5 percent; nevertheless, payments by the Planning Ministry do not support this increase.

Defence was budgeted and disbursed at 1.7 percent of GDP, with a predicted 1.9 percent of GDP for the next fiscal year.

The Fund has allocated privatisation proceeds at zero percent of GDP for this year and the next four years.

Output of major crops was disappointing in H1 and industrial activity has remained subdued, but based on recent high frequency indicators projected an acceleration in fiscal year 2025 H2 and thereafter.

According to the Fund, inflation declined to 0.7 percent (year on year) in March, owing to strict macroeconomic measures and, in particular, lower food and energy prices. However, core inflation remains high at roughly 9 percent.

Inflation is revised lower for fiscal year 2025, while it is forecast to rise significantly in the next months due to adverse base effects, with a long-term return to the target range (5-7 percent) expected from fiscal year 2026, assuming policy remains adequately tight.

The current account deficit (CAD) for fiscal year 2025 is expected to be around $0.2 billion (0.1 percent of GDP), aided by stable exports and a brighter remittance outlook, as improved macroeconomic and foreign exchange stability has encouraged a comeback in remittance inflows through formal channels.

Over the medium run, the CAD is likely to widen somewhat to roughly 1% of GDP as imports recover. Gross (net) international reserves are likely to rise further, aided by funding commitments from multilateral and bilateral creditors, as well as anticipated RSF disbursements ($1.3 billion).

Access to external commercial finance is likely to be limited throughout the program, with a minor “Panda” bond issue planned for fiscal year 2026, followed by a gradual return to the Eurobond/Global Sukuk market in fiscal year 2027, indicating a restoration of policy credibility.

The Fund has also reduced the projected exports for fiscal year 2024-25 to $31.305 billion, down from $31.751 billion. Imports are expected to rise to $57.634 billion in fiscal year 2024-25, up from $57.180 billion previously planned.