IMF report unveils Pakistan’s economic trajectory amidst fiscal struggles

WASHINGTON: The International Monetary Fund’s (IMF) recent report provided insights into Pakistan’s economic trajectory amid ongoing challenges. It projected that Pakistan’s growth rate in 2024 would exceed that of 2023, signaling a positive economic outlook for the country grappling with inflation.

However, weak fiscal policies and rising electricity and gas tariffs have exacerbated inflationary pressures.

Read more: New IMF report offers glimmer of hope for inflation-stricken Pakistan

Pakistan has faced external payment pressures, leading to substantial debt repayments and reliance on eurobonds. Eurobonds are debt securities issued in a foreign currency. They have been used by Pakistan to raise international funds for external payments and government expenditures.

The country has been heavily borrowing from international banks to meet domestic payment obligations. This has resulted in reduced credit availability for the private sector.

The IMF report talked about the need for fiscal reforms in the country, such as reducing spending and subsidies, ending tax exemptions, and improving tax collection, to address fiscal imbalances. The report also suggested lifting trade bans could potentially increase exports by 15 per cent, while trade infrastructure enhancements could further boost export potential.

Despite challenges, Pakistan has made efforts to leverage digital technology and streamline customs processes to stimulate economic growth. However, armed conflicts, structural issues, and petroleum product imports continue to inhibit economic recovery.

Separately, Finance Minister Muhammad Aurangzeb has expressed Pakistan’s intention to negotiate a new IMF loan arrangement in May. The current $3 billion IMF arrangement is expiring, and the government seeks a larger loan to ensure macroeconomic stability and execute structural reforms. Pakistan also plans to seek additional financing from the IMF under the Resilience and Sustainability Trust.

Read more: ‘Pakistan hopes to secure new IMF loan as quickly as possible’

The country aims to reenter international debt markets, possibly through green bond issuance to fund environmentally beneficial projects. Green bonds support sustainability efforts, potentially financing renewable energy projects or initiatives addressing climate change.

Discussions with rating agencies are underway to better Pakistan’s sovereign rating, with potential bond issuance anticipated in the 2025-26 fiscal year.