IMF report shows current account deficit of 0.4% of GDP for current fiscal year
Pakistan faces more than $8 billion in external debt maturities in FY25 (excluding $13 billion in routinely renewed bilateral loans) and any delay in debt renewals may put the IMF program 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, while 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 Washington’s World Economic Outlook report, which puts Pakistan’s economic growth rate at 3.6%. But he clarified that Pakistan’s economic projections “do not yet reflect the impact of the summer 2025 floods, the impact of which is still being assessed.”
The adverse implications of the floods on economic growth, inflation, the budget and the external sector are one of the outstanding issues hindering the finalization of the staff-level agreement to complete the second review of the rescue package, according to government sources.
Contrary to the forecast of 3.6% economic growth, sources said that during inconclusive discussions last week, IMF staff had projected growth of 3% to 3.5%. They said the IMF’s view was that the recent floods have weighed on the economic outlook, particularly for the agricultural sector, given the damage to Kharif’s main crops.
The government has already adjusted its ambitious target downwards from 4.2% to 3.5%, while the World Bank has made a forecast of 2.6% for the same reason.
Sources said that even in the medium term, the IMF was not projecting an economic growth rate of more than 4.5% for Pakistan, which also depends on the support of any significant increase in exports and investment.
The global report was released on the day Pakistan’s Finance Minister, also in Washington, “expected” the country to reach a staff-level agreement with the IMF within this week for two tranches of loans totaling $1.2 billion.
In an interview with Reuters, Aurangzeb said that “over the course of this week, we hope to be able to achieve the Staff Level Agreement.” Earlier, Aurangzeb met Jihad Azour, Director of the Middle East and Central Asia Department of the IMF and raised the issue of signing the agreement at the staff level.
A press release from the Ministry of Finance stated that both sides exchanged views on Pakistan’s reform agenda and reaffirmed their shared commitment to maintaining the current reform momentum. The meeting reviewed progress under the second review of the Expanded Fund Facility (ESAF) and recognized the importance of maintaining macroeconomic discipline, the ministry added.
The IMF team had returned to Washington last week without reaching a staff-level agreement to complete the second review of the $7 billion bailout package due to differences over four key issues. These pending issues coincide with the official publication of the Governance and Corruption Diagnostic Assessment report, the primary budget surplus target and the fiscal impact of flood losses.
The world outlook report has projected a 6% inflation rate for Pakistan, which may again see changes due to the impact of the floods. During discussions last week, the IMF team stated that headline inflation was expected to remain within the 5% to 7% range before temporarily rising above the target towards the end of the fiscal year due to adverse base effects from food and energy prices, the sources said.
The IMF report showed the current account deficit at 0.4% of GDP for the current fiscal year, while the Finance Ministry has projected the deficit at 0.2% of GDP.
The Finance Ministry also stated that Aurangzeb met with Robert Kaproth, US Treasury Undersecretary for International Finance, and adviser Jonathan Greenstein. During the discussion, the minister highlighted Pakistan’s strong economic fundamentals, backed by the ongoing IMF programme, he added.
Aurangzeb briefed US Treasury officials on Pakistan’s recent legislation to regulate virtual assets. Additionally, it invited American companies to explore investment opportunities in Pakistan’s oil and gas, minerals, agriculture and information technology sectors, according to the Ministry of Finance.
Global perspective
The IMF has revised upward the expected global economic outlook for calendar year 2025, from 2.8% to 3.2%, due to a smaller-than-expected adverse impact of the US tariff wall on global trade. He also revised upward the economic growth forecast for the United States to 2% and that of China to 4.8%.
The outlook report stated that the year 2025 has been fluid and volatile, with much of the dynamic driven by a realignment of policy priorities in the United States and the adaptation of policies in other economies to new realities.
He added that trade news has dominated the headlines and, along with it, the perceived outlook for the global economy has fluctuated. A series of new tariff measures adopted by the United States raised tariff rates to levels not seen in a century.
However, tariffs are a long way from falling back to their 2024 levels. Trade policy uncertainty remains high in the absence of clear, transparent and lasting agreements between trading partners, and as attention begins to shift from the final level of tariffs to their impact on prices, investment and consumption, according to the outlook report.
Previously, fear of the April tariff shock and the associated uncertainty with which it developed led the IMF to revise downward the global growth projection for 2025, by half a percentage point to 2.8%.
But the IMF said more protectionist trade measures have had a limited impact on economic activity and prices. Growth was sustained in the first half of the year, with annualized quarter-on-year growth rates persisting at around 3.5%.
The unexpected resilience of activity and the weak response of inflation reflect, in addition to the fact that the tariff shock has turned out to be smaller than originally announced, a series of factors that provide temporary relief, rather than an underlying strength in economic fundamentals, he added.
Households and businesses anticipated their consumption and investment in anticipation of higher tariffs. This gave a temporary boost to global activity in early 2025. Trade flows began to adjust and the shift towards third countries was reflected in high-frequency data, according to the IMF.
