The International Monetary Fund (IMF) has projected a 3.2% GDP growth rate for Pakistan in the fiscal year 2024-25, following a recovery of 2.4% in the previous fiscal year. This projection comes as part of the IMF’s latest statement on Pakistan, issued after the Executive Board’s assessment of the country’s economic progress under the 2023-24 Stand-by Arrangement (SBA).
The IMF’s analysis highlights key measures taken by Pakistan to stabilize its economy, including consistent policy implementation and reforms. The economic rebound seen in FY24 was mainly driven by agricultural activity, while inflation has notably declined to single-digit levels. This reduction in inflation is attributed to a combination of tight fiscal and monetary policies, which have helped contain the current account and stabilize the foreign exchange market, allowing Pakistan to rebuild its foreign reserves.
Reflecting these improved conditions, the State Bank of Pakistan (SBP) has cut the policy rate by a total of 450 basis points since June 2024. This adjustment is supported by a fiscally prudent budget for FY25, aiming to maintain economic stability while fostering growth.
Despite the recent progress, the IMF report underscores the significant structural challenges that continue to impede Pakistan’s economic potential. A difficult business environment, governance issues, and the dominant role of the state in various sectors continue to hinder investment, which remains low relative to peer economies. The report also emphasizes the need for a broader tax base to support fiscal sustainability and to finance essential social and developmental spending.
The IMF notes that critical areas such as health, education, and infrastructure investment remain underfunded. Insufficient spending in these areas has made it challenging to address persistent poverty and has left Pakistan more vulnerable to the impacts of climate change. The IMF warns that without a strong commitment to reforms and adjustments, Pakistan risks falling further behind its regional peers.
In light of these challenges, Pakistan’s authorities are undertaking renewed efforts under a new Extended Fund Facility (EFF)-supported program. The program focuses on several key priorities, including:
- Rebuilding policy-making credibility and maintaining macroeconomic stability through sound policies and an expanded tax base.
- Implementing reforms to enhance competition, productivity, and competitiveness.
- Improving the efficiency and viability of state-owned enterprises (SOEs) and strengthening public service delivery in sectors like energy.
- Building resilience to climate-related risks.
During the IMF Executive Board discussion, Kenji Okamura, Deputy Managing Director and Acting Chair, acknowledged the progress made over the past year. He highlighted the importance of sound policy implementation in restoring stability and rebuilding investor confidence. He pointed out that growth has returned, external pressures have eased with reserves doubling over the past year, and inflation has declined significantly.
However, Okamura also emphasized the need for continued structural reforms to solidify Pakistan’s economic resilience. He stressed that the EFF-supported program would be critical for guiding policy direction and structural reforms, and for securing necessary financing from international partners.
The IMF also outlined steps for Pakistan’s fiscal consolidation in FY25 and beyond. A focus on enhancing revenue through a broadened tax base and eliminating special sectoral regimes is expected to contribute to fiscal sustainability. By placing a fairer tax burden on previously undertaxed sectors—such as industrialists, developers, and large-scale agriculture—the government aims to generate the revenue required for essential investments in human capital, infrastructure, and social services.
The IMF’s recommendations further include institutional reforms to improve coordination between federal and provincial governments, strengthen tax administration, and optimize public investment management. In the energy sector, timely tariff adjustments have stabilized the circular debt issue, but deeper reforms are needed to ensure long-term viability and cost reduction.
The IMF also welcomed the recent decrease in inflation, which has enabled the SBP to adopt a more balanced monetary stance while continuing to rebuild foreign exchange reserves. The institution emphasized the importance of maintaining reserves to buffer external shocks, attract investment, and protect the country’s economic stability.
Looking ahead, the IMF urged Pakistan to address longstanding issues such as low productivity, economic openness, and climate vulnerability through faster implementation of structural reforms. Key reform priorities include advancing the agenda for state-owned enterprises, reducing market distortions, fostering fair competition in the business environment, and strengthening governance and anti-corruption measures.
The IMF’s projections signal cautious optimism for Pakistan’s economic recovery in FY25, provided that the country can sustain its policy momentum and tackle the deep-rooted structural challenges that have long constrained its economic potential. With the IMF’s continued support and the government’s commitment to reforms, Pakistan aims to build a more resilient and competitive economy, capable of delivering sustainable growth in the years to come.