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IMF Projects Modest Growth for Pakistan, Eases Immediate Economic Crisis
Pakistan's economy stabilizes, but growth projections remain modest. IMF sees growth rising to 3.2% by FY2026, with challenges in jobs, debt, and investment.
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by Muhammad Hashir
2025-12-09
IMF Projects Modest Growth for Pakistan, Eases Immediate Economic Crisis

The International Monetary Fund (IMF) has released its latest projections for Pakistan, signaling that while the immediate risk of an economic collapse has eased, the country remains trapped in a precarious stabilisation phase. The IMF report, released on Tuesday alongside a fresh disbursement of $1.2 billion, outlines a modest economic recovery, marked by weak growth, heavy debt burdens, and limited relief for households.

According to the IMF’s projections, Pakistan’s GDP growth is expected to inch up from 2.6% in FY2024 to 3.2% by FY2026. However, this growth barely keeps pace with the country’s population growth, which stands at around 2.5%, suggesting more of a containment of economic challenges than a full-fledged recovery.

Pakistan’s per capita income, currently at $1,677, further underscores the limited recovery trajectory, pointing to a fragile economic landscape. The country’s rapid population growth remains a major challenge for development, despite a slight dip from past peaks in the growth rate.

A notable development in the IMF projections is the significant improvement in inflation. After an average of 23.4% in FY2024, consumer prices are expected to drop to 4.5% in FY2025, and rise slightly to 6.3% by FY2026. This disinflationary trend reflects tight monetary policies and reduced subsidies under the IMF program, although the projected rise in inflation suggests that price stability remains fragile.

The labour market remains weak, with unemployment projected to drop only marginally, from 8.3% in FY2024 to 7.5% in FY2026, underlining the limited capacity of the current growth trajectory to create new jobs.

On the fiscal front, the government has made substantial adjustments. Revenue and grants are projected to rise from 12.7% of GDP in FY2024 to 16.3% by FY2026, while government expenditure remains high at around 20% of GDP. As a result, the budget deficit is expected to narrow from -6.8% of GDP in FY2024 to -4.0% by FY2026, and Pakistan is expected to maintain a primary surplus of 2.5% of GDP.

Despite these fiscal adjustments, Pakistan’s public debt remains heavy, with total government debt projected at 72-73% of GDP, and guaranteed debt nearing 76% of GDP. Domestic debt continues to be a significant burden, contributing to high interest costs.

External pressures on the economy have eased, with the current account balance expected to shift from a small deficit in FY2024 to a modest surplus by FY2025, before slipping back into a deficit in FY2026. Foreign exchange reserves are projected to rise from $9.4 billion in FY2024 to $17.8 billion by FY2026, which would increase import cover from 1.6 months to 2.7 months—though still short of a comfortable level.

Despite the positive projections, foreign direct investment (FDI) remains subdued, with FDI expected to stay at just 0.5-0.6% of GDP throughout the forecast period. This indicates continued investor caution despite improvements in macroeconomic stability.

Monetary conditions remain tight, with broad money growth projected at 14-16%, and private sector credit growth expected to improve from 6% to 15%. However, high interest rates continue to constrain borrowing and investment, with the six-month treasury bill rate standing at 21.5% in FY2024.

The value of the Pakistani rupee has strengthened, with a 15.4% real effective appreciation in FY2024. While this may signal a shift towards currency stability, it also raises concerns about export competitiveness, especially in the textile sector, which accounts for $17.3 billion in exports.

In conclusion, the IMF’s projections indicate that Pakistan has managed to stabilize its economy in the short term through fiscal and monetary tightening. However, the road ahead remains fraught with challenges, including high debt, sluggish investment, and slow job growth.

PM’s Response: Stability Achieved, But Growth Efforts Must Continue

In reaction to the IMF’s projections, Prime Minister Shehbaz Sharif expressed optimism, calling the fresh IMF disbursement a sign of progress in Pakistan’s economic reforms. He emphasized that the successful implementation of the IMF-backed reforms was a collective effort, with key support from Finance Minister Muhammad Aurangzeb and the military leadership, particularly Chief of Army Staff Field Marshal Syed Asim Munir.

The Prime Minister acknowledged the hardships endured by the Pakistani people, stressing that political sacrifices had paved the way for the country’s return from the brink of default to a path of stability. He reiterated that while stability had been achieved, further efforts were necessary to transition Pakistan’s economy toward sustained growth.

Sharif also expressed confidence that Pakistan’s economic reforms, including digitization, had positioned the country as a case study for other nations. He pledged his commitment to working for Pakistan’s economic self-sufficiency and complete freedom from foreign debt.
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EconomicStability

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