ISLAMABAD: Although the incumbent government, after months of strenuous efforts, finally secured the approval of a new loan program by the International Monetary Fund’s (IMF) Executive Board, the work is far from over as the lender has set out key fiscal targets for the government as part of the $7 billion loan program, The News reported on Sunday.
The country has received the first tranche of approximately $1.03 billion (SDR 760 million) under the Extended Fund Facility (EFF). The IMF has underscored the need for strong fiscal reforms to ensure long-term sustainability, noting that government revenue, including grants, is projected to rise from 12.6% of the gross domestic product (GDP) in FY2024 to 15.4% in FY2025.
The fiscal deficit (income-expenditure gap), including grants, is expected to narrow from 6.7% to 6.0% of GDP during the same period. Excluding grants, the deficit is projected at 6.1% of GDP for FY2025. Meanwhile, the country’s primary balance (excluding grants) is expected to shift from a surplus of 0.9% of GDP in FY2024 to 2% of GDP in FY2025, a substantial turnaround from the 0.9% deficit seen in FY2023.
Public debt, which was 74.9% of GDP (excluding IMF obligations) in FY2023, declined to 67% in FY2024 and is now projected to rise slightly to 69% in FY2025. External debt, which stood at 28.6% of GDP in FY2023, dropped to 22.6% in FY2024 and is projected to rise again to 24% in FY2025.
Pakistan’s current account deficit, which shrank from 1.0% of GDP in FY2023 to 0.2% in FY2024, is expected to widen again to 0.9% by FY2025. Foreign direct investment (FDI), which held steady at 0.5% of GDP in FY2024, is forecast to decline slightly to 0.4% of GDP in FY2025.
The IMF anticipates significant improvement in foreign exchange reserves, 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.
The lender estimates that the country’s economy will recover steadily in FY2025, with real GDP growth rising to 3.2%, up from 2.4% 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, 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% in FY2024, will drop to 9.5% 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% for FY2024, projected to gradually decrease to 7.5% by FY2025.
Energy sector reforms remain a critical component of the EFF programme, with the IMF calling 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 removing sector-specific exemptions and including under-represented sectors such as large-scale agriculture, industrialists, and developers in the tax net.
The programme 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.
