IMF’s report shows current account deficit at 0.4% of GDP for current fiscal year
Pakistan faces over $8 billion in external debt maturities in FY25 (excluding $13 billion in routinely rolled-over bilateral loans) and any delay in debt rollovers can put the IMF programme at risk. photo: file
ISLAMABAD:
The International Monetary Fund (IMF) on Tuesday projected Pakistan’s economic growth rate at 3.6% for the current fiscal year, as Finance Minister Muhammad Aurangzeb expressed hope that a staff-level agreement with the lender for two tranches worth $1.2 billion would be reached this week.
The IMF released the World Economic Outlook report from Washington, pitching Pakistan’s economic growth rate at 3.6%. But it clarified that Pakistan’s economic “projections do not yet reflect the impact of flooding in summer 2025, whose impact is still being assessed”.
The adverse implications of the floods on the economic growth, inflation, budget and external sector are one of the outstanding issues hampering the finalisation of the staff-level agreement for the completion of the second review of the bailout package, according to the government sources.
Contrary to the forecast of 3.6% economic growth, the sources said that during the last week’s inconclusive discussions, the IMF staff had projected 3% to 3.5% growth. They said that the IMF’s view was that the recent floods have weighed on the economic outlook, particularly for the agriculture sector given the damages to major Kharif crops.
The government has already downward adjusted its 4.2% ambitious target to 3.5% while the World Bank has made a forecast of 2.6% for the same reason.
The sources said that even in the medium term, the IMF was not projecting more than 4.5% economic growth rate for Pakistan that too is hinging upon the support from any meaningful increase in exports and investment.
The global report was released the day Pakistan’s Finance Minister, also in Washington, “hoped” that the country would reach a staff level agreement with the IMF within this week for two loan tranches totaling $1.2 billion.
In an interview to Reuters, Aurangzeb said that “during the course of this week, we’re hoping that we can get the Staff-Level Agreement done”. Earlier, Aurangzeb met with Jihad Azour, Director of the IMF’s Middle East and Central Asia Department and took up the issue of the signing of the staff-level agreement.
A press note by the Ministry of Finance stated that both sides exchanged views on Pakistan’s reform agenda and reaffirmed their shared commitment to sustaining the current momentum of reforms. The meeting reviewed progress under the second review of the Extended Fund Facility (EFF) and acknowledged the importance of maintaining macroeconomic discipline, the ministry added.
The IMF team had returned to Washington last week without reaching a staff-level agreement for the completion of the second review of the $7 billion bailout package due to differences over four key issues. These outstanding issues are timing for the official publication of the Governance and Corruption Diagnosis Assessment report, the primary budget surplus target and the fiscal impact of the flood losses.
The world outlook report has projected a 6% inflation rate for Pakistan, which again may undergo changes due to the impact of the floods. During the last week’s discussions, the IMF team stated that the headline inflation was expected to remain within the range of 5% to 7% before temporarily rising above the target toward the end of the fiscal year due to adverse food and energy price base effects, said the sources.
The IMF’s report showed the current account deficit at 0.4% of the GDP for the current fiscal year while the Ministry of Finance has projected the deficit at 0.2% of the GDP.
The Finance Ministry also stated that Aurangzeb held a meeting with Robert Kaproth, US Assistant Treasury Secretary for International Finance, and Counsellor Jonathan Greenstein. During the discussion, the minister highlighted the strong economic fundamentals of Pakistan, underpinned by the ongoing IMF programme, it added.
Aurangzeb apprised the US treasury officials of Pakistan’s recent legislation to regulate virtual assets. He further invited US companies to explore investment opportunities in Pakistan’s oil and gas, mineral, agriculture, and information technology sectors, according to the Finance Ministry.
Global outlook
The IMF has upwardly revised the global economic outlook forecast for the 2025 calendar year from 2.8% to 3.2% due to less than projected adverse impact of the US tariff wall on global trade. It also upward revised the US economic growth forecast to 2% and that of China’s to 4.8%.
The outlook report stated that the year 2025 has been fluid and volatile, with much of the dynamics driven by a reordering of policy priorities in the United States and the adaptation of policies in the other economies to new realities.
It added that trade news has dominated the headlines, and, along with them, perceived prospects for the global economy have fluctuated. A series of new tariff measures by the United States lifted tariff rates to levels not seen in a century.
Nonetheless, tariffs are very far from falling back to their 2024 levels. Trade policy uncertainty remains elevated in the absence of clear, transparent, and durable agreements among trading partnersand with attention starting to shift from the eventual level of tariffs to their impact on prices, investment, and consumption, according to the outlook report.
Earlier, the fear of the tariff shock in April and the associated uncertainty with which it unfolded prompted the IMF to downward revise the global growth projection for 2025, by half percentage point to 2.8%.
But the IMF said that more protectionist trade measures have had a limited impact on economic activity and prices. Growth held up in the first half of the year, with year-over-year quarterly annualised growth rates persisting at about 3.5%.
The unexpected resilience in activity and muted inflation response reflectin addition to the fact that the tariff shock has turned out to be smaller than originally announceda range of factors that provide temporary relief, rather than underlying strength in economic fundamentals, it added.
Households and businesses front-loaded their consumption and investment in anticipation of higher tariffs. This gave a temporary boost to global activity in early 2025. Trade flows started adjusting, with diversion to third countries captured in high-frequency data, according to the IMF.
