IMF Completes Final Review of Pakistan’s Economic Reform, Approves $1.1 Billion Disbursement

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Washington DC, The International Monetary Fund (IMF) has completed the second and final review of Pakistan’s economic reform efforts under the Stand-By Arrangement (SBA), authorizing an immediate disbursement of approximately $1.1 billion. This latest funding brings the total disbursement under the arrangement to about $3 billion, marking a pivotal moment in Pakistan’s ambitious economic reform program.

According to International Monetary Fund, the conclusion of this review reflects the Pakistani authorities’ commitment to strong policy implementation, which has stabilized the economy and facilitated a return to moderate economic growth. The SBA, initiated in July 2023, was designed as a nine-month program to provide a policy framework for addressing domestic and external imbalances and to secure additional support from global financial institutions and countries.

During the course of the SBA, Pakistan has made significant progress in several critical areas, including fiscal adjustments to ensure debt sustainability, safeguarding social spending, enhancing the resilience of the financial sector, and implementing necessary structural reforms, particularly in the energy sector and state-owned enterprises. These measures have been instrumental in stabilizing the economy and laying the groundwork for sustainable growth.

Antoinette Sayeh, Deputy Managing Director of the IMF, praised Pakistan’s efforts: “Pakistan’s determined policy execution under the SBA has led to notable improvements in economic stability. The return of moderate growth, the easing of external pressures, and the beginning of inflation decline are positive outcomes of these efforts.”

The IMF highlighted that Pakistan’s fiscal performance has exceeded expectations, with a primary surplus significantly above projected figures for the first half of the fiscal year. This achievement positions Pakistan well to meet its fiscal targets by the end of FY24. However, the IMF also underscored the necessity for ongoing reforms, particularly in revenue mobilization and public financial management, to sustain fiscal health and create room for increased social and developmental spending.

On the monetary front, the State Bank of Pakistan’s commitment to tight monetary policies has been crucial in controlling inflation, which is projected to decrease to around 20 percent by the end of June. The IMF also emphasized the importance of maintaining a market-determined exchange rate to manage external shocks effectively.

The Fund also praised Pakistan’s progress in rebuilding its foreign exchange reserves, which have more than doubled since the start of the program, improving from $4.5 billion to around $8 billion. Looking ahead, the IMF advises further reserve accumulation to enhance economic resilience.

Pakistan’s population stood at 231.6 million in the fiscal year 2022/23, with a per capita GDP of US$1,446.3. The national poverty rate was marked at 21.9 percent, with textiles being the main export valued at US$16.5 billion for the fiscal year 2022/23. The European Union, the United States, and the UAE were noted as key export markets.

For the fiscal year 2023, the real GDP at factor cost was projected to decline slightly by 0.2 percent, before rising to 2 percent in FY2024 and 3.5 percent in FY2025. Unemployment rates are expected to decrease gradually from 8.5 percent in FY2023 to 7.5 percent by FY2025.

Consumer prices, which have been a significant concern, showed an average of 29.2 percent in FY2023, with a projected decrease to 12.7 percent by FY2025. The end of period consumer prices are also expected to fall from 29.4 percent to 9.5 percent in the same timeframe.

Government finances showed a challenging scenario with a general government debt excluding IMF obligations reported at 74.7 percent of GDP in FY2023, decreasing to 68.1 percent by FY2025. The revenue and grants as a percentage of GDP are expected to improve slightly from 11.4 percent in FY2023 to 12.5 percent in FY2024, stabilizing at 12.4 percent in FY2025.

Monetary and credit indicators reveal that broad money growth was 14.2 percent in FY2023, with a prediction of increasing significantly to 22 percent by FY2025. Private credit is also expected to grow from 2.3 percent in FY2023 to 20 percent in FY2025.

The balance of payments illustrates a small expected deterioration in the current account balance from -0.7 percent of GDP in FY2023 to -1.2 percent in FY2025. Foreign direct investment is projected to hover around 0.2 to 0.3 percent of GDP during this period. Gross foreign reserves have shown a significant improvement from $4,455 million at the beginning of the period to an expected $13,364 million by FY2025.

This comprehensive economic forecast by the IMF underscores the critical importance of ongoing economic reforms and fiscal discipline in ensuring sustainable growth and development for Pakistan. The IMF stresses the necessity for Pakistan to maintain its reform momentum to achieve these projected outcomes and to enhance its economic resilience.