The Executive Board of the International Monetary Fund (IMF) has released outlook report of Pakistan after completing the first review of country’s economic reform program supported by the EFF Arrangement. Following the Executive Board discussion, Nigel Clarke, Deputy Managing Director and Chair, said Pakistan has made important progress in restoring macroeconomic stability despite a challenging environment.
He said since the approval of the Extended Fund Facility, Pakistan’s economy continues to recover, with inflation sharply lower and external buffers notably stronger. Risks to the outlook remain elevated, however, particularly from global economic policy uncertainty, rising geopolitical tensions, and persistent domestic vulnerabilities. Against this backdrop, the authorities need to maintain sound macroeconomic policies and accelerate reforms to safeguard the macroeconomic gains and underpin stronger and sustainable, private sector-led medium-term growth.
The IMF said steadfast implementation of the FY2025 budget and the passage of key fiscal reforms, notably the Agricultural Income Tax, underpin the process of rebuilding policy making credibility. Continuing to mobilize greater revenue from undertaxed sectors and the noncompliant will make the tax system more equitable and efficient. This, combined with federal and provincial spending discipline, will strengthen sustainability, build resilience, and reduce the public sector’s crowding out of private credit.
Nigel Clarke, Deputy Managing Director and Chair, said the timely implementation of power tariff adjustments has helped reduce the stock and flow of circular debt. Meanwhile, cost-side reforms are showing early signs of success but need to be accelerated to safeguard the energy sector’s viability and improve Pakistan’s competitiveness.
The IMF said State Bank of Pakistan’s (SBP) tight monetary policy stance has been pivotal in reducing inflation to historic lows. Monetary policy should remain appropriately tight and data dependent to ensure inflation is anchored within the SBP’s target range.
A more flexible exchange rate will facilitate the adjustment to external and domestic shocks, aiding the rebuilding of reserves. Prompt action to address undercapitalized financial institutions and vigilance over the financial sector are necessary for financial stability. Strengthening of AML/CFT frameworks is also needed.
Nigel Clarke, Deputy Managing Director and Chair, said accelerating structural reforms will unlock Pakistan’s competitiveness, creating conditions to attract high-impact private investment. Reform priorities include reducing trade and investment barriers, advancing SOE reforms, and decisively strengthening governance and anticorruption institutions.
The IMF said reducing Pakistan’s vulnerability to extreme weather events will enhance macroeconomic stability and fiscal sustainability. The reforms under the Resilience and Sustainability Facility aim to build resilience to natural disasters by strengthening public investment processes, supporting efficient use of scarce water resources, strengthening coordination of natural disaster response and financing, improving the information on climate-related risks, and supporting Pakistan in meeting its international commitments.
Nigel Clarke, Deputy Managing Director and Chair, said this decision allows for an immediate disbursement of around $1 billion, bringing total disbursements under the arrangement to about $2.1 billion (SDR 1.52 billion). In addition, the IMF Executive Board approved the authorities’ request for an arrangement under the Resilience and Sustainability Facility (RSF), with access of about US$1.4 billion (SDR 1 billion).
Pakistan’s 37-month EFF was approved on September 25, 2024, and aims to build resilience and enable sustainable growth. Key priorities include entrenching macroeconomic sustainability through consistent implementation of sound macro policies, including rebuilding international reserve buffers and broadening of the tax base; advancing reforms to strengthen competition and raise productivity and competitiveness; reforming SOEs and improving public service provision and energy sector viability and building climate resilience. The authorities’ program aims at prioritizing resilience to natural disasters and strengthen public investment processes at all levels of government; makes the use of scarce water resources more efficient, including through better pricing; strengthens coordination of natural disaster response and financing between federal and provincial governments; improves the information architecture, for and disclosure of, climate-related risks by banks and corporates and supports Pakistan’s efforts to meet its mitigation commitments and reduce related macro-critical risks.