Islamabad: Pakistan’s immediate risk of economic free fall has eased, but the country remains on a narrow stabilization path, according to the latest projections by the International Monetary Fund (IMF). The Fund, which released its updated forecasts alongside a fresh disbursement of around $1.2 billion to Pakistan, highlighted that while inflation has moderated and fiscal deficits are shrinking, the economy continues to grapple with weak growth, high debt, and limited relief for households.
IMF projections show Pakistan’s GDP growth inching up from 2.6% in FY2024 to 3.2% by FY2026—a pace barely matching the population growth of 240.5 million. Per capita income stands at $1,677, reflecting containment rather than genuine recovery. Population growth remains high at 2.55%, posing ongoing developmental challenges.
Inflation, however, has shown a remarkable turnaround. Consumer prices are projected to drop from 23.4% in FY2024 to 4.5% in FY2025, before climbing modestly to 6.3% in FY2026. End-period inflation is expected to ease from 12.6% to 3.2% in FY2025, before rising to 8.9% in FY2026. Analysts say this reflects tight monetary policy, lower subsidies, and subdued demand under the IMF programme, though the projected rebound underscores fragile price stability.
Labour market conditions offer only limited relief. Unemployment is forecasted to decline modestly from 8.3% in FY2024 to 7.5% in FY2026, highlighting the limited job-creating capacity of the current growth path. On the fiscal front, revenue and grants are expected to rise from 12.7% of GDP to 16.3%, while expenditures remain near 20%, narrowing the budget deficit from -6.8% to -4.0% of GDP. The country is projected to maintain a primary surplus of 2.5% of GDP, meeting a key IMF benchmark.
Despite these adjustments, Pakistan’s debt burden remains heavy. Total government debt, including IMF obligations, is projected at 72–73% of GDP, while domestic debt accounts for nearly half, keeping interest costs high amid elevated borrowing rates. External pressures have eased, with the current account projected near balance and foreign reserves rising from $9.4 billion in FY2024 to $17.8 billion by FY2026. However, foreign direct investment remains subdued at just 0.5–0.6% of GDP, reflecting persistent investor caution.
Prime Minister Shehbaz Sharif welcomed the IMF’s disbursement as a testament to Pakistan’s progress on economic reforms. He lauded Finance Minister Muhammad Aurangzeb, the Chief of Defense Staff, and the armed forces for their role in supporting reforms. “Political parties sacrificed politics, and the nation endured economic hardships to make the impossible possible,” the premier said, adding that while stability had been achieved, sustained efforts are required to move the economy toward inclusive growth and self-sufficiency.
The IMF projections paint a picture of a country that has regained short-term stability through sharp fiscal and monetary adjustments but remains burdened by high debt, slow employment growth, and limited investment. The challenge now lies in translating stabilization into sustained, broad-based economic growth.