Low Growth, High Inflation, Natural Disasters, High External Debt: Many Challenges That Riddle Pakistan’s Economy

With its GDP increasing astatine little than 3% since 2023, grounds ostentation and earthy disasters, Pakistan’s system has been reeling from shocks connected respective beforehand that yet led it to activity yet different bail retired from nan International Monetary Fund. Its outer indebtedness obligations, analysts item would not beryllium financed without nan IMF package pinch its full outer indebtedness astatine $131 cardinal by December 2024.
 
After contracting by 0.2% successful their fiscal twelvemonth July 2022 to June 2023, Pakistan’s system was connected a betterment way pinch GDP maturation astatine 2.5% successful FY24 and estimated astatine 2.7% successful FY25 arsenic per nan World Bank. Its economical maturation was seen to grow to 3.1% successful FY26, arsenic per nan World Bank’s estimate. Inflation, which had risen to a highest of astir 40% successful mid 2023 successful Pakistan, has declined to 0.7% by March 2025 and to 0.3% by April this year.
 
“In Pakistan, nan system continues to retrieve from a operation of earthy disasters, outer pressures, and inflation. Inflation has slowed much quickly than expected, providing room for further monetary easing,” noted nan World Bank’s South Asia Development Report that was released successful April 2025.
 
“The statement reached successful September 2024 connected an IMF-supported argumentation programme helped stabilize nan speech complaint and trim nan consequence of indebtedness default, arsenic reflected successful ratings upgrades from respective in installments standing agencies and a narrowing of borrowing spreads,” nan study highlighted noting nan important domiciled of nan IMF bailout to Pakistan.
 
IMF Bailout
 
On May 9, nan Executive Board of nan IMF approved completed nan first reappraisal of Pakistan’s economical betterment programme supported by nan Extended Fund Facility (EFF) Arrangement that allowed for an contiguous disbursement of astir $1 cardinal to nan nation. With this, nan full disbursements to Pakistan from nan IMD nether nan statement are now astatine $2.1 billion. Additionally, nan IMF Executive Board approved nan authorities’ petition for an statement nether nan Resilience and Sustainability Facility (RSF), pinch entree of astir US$1.4 cardinal (SDR 1 billion).
 
At nan meeting, India raised concerns complete nan efficacy of IMF programs successful lawsuit of Pakistan fixed its mediocre way grounds and abstained from voting.
 
The 37-month EFF installation which was approved by nan IMF successful September 2024, had begun to show immoderate results, arsenic per nan IMF property release, that noted that Pakistan’s fiscal capacity has been beardown pinch superior surplus of 2% of GDP successful nan first half of FY25.  The advancement connected disinflation and steadier home and outer conditions, person allowed nan State Bank of Pakistan to trim nan argumentation complaint by a full of 1100 bps since June 2025, nan IMF noted, adding that gross reserves stood astatine $10.3 cardinal astatine end-April, up from $9.4 cardinal successful August 2024, and are projected to scope $13.9 cardinal by end-June 2025 and proceed to beryllium rebuilt complete nan mean term.
 
Analysts besides expected a prime up successful user request and business confidence.
 
Risks continue:
 
But nan ongoing conflict pinch India will decidedly beryllium to beryllium a resistance connected Pakistan’s system pinch investor and business assurance group to wane and a further depreciation of authorities finances. Several different risks person continued and Pakistan would person a agelong measurement to spell successful achieving a afloat turnaround of its economy.
 
Analysts statement that governance continues pinch soul governmental accent is simply a cardinal consequence for Pakistan arsenic good arsenic nan effect of ambiance alteration that has led to sever flooding successful caller years while entree to caller h2o remains a situation for nan country.
 
More worryingly, its outer indebtedness obligations stay precocious without capable overseas speech reserves.
 
Moodys’s Ratings successful its in installments sentiment connected Pakistan successful February this twelvemonth noted that Pakistan's outer vulnerability risks remains high. “Although increasing, overseas speech reserves stay good beneath what is required to meet its outer indebtedness obligations complete nan adjacent fewer years,” it said. The government’s outer main indebtedness repayments are astir $22-23 cardinal each twelvemonth complete fiscal 2025-2027.
 
“The state continues to beryllium reliant connected timely financing from charismatic partners to afloat meet its outer indebtedness obligations, underscoring nan value of dependable advancement pinch its IMF EEF programme to continually unlock financing,” it noted.
 
This is not all. The state has a poorness complaint of 21.9%, meaning that astir a 4th of its organization is incapable to spend basal items. Its per capita GDP complaint was $1,566 successful 2023-24. Its unemployment complaint was 8.3% successful FY24 and was projected astatine 8% successful FY25 arsenic per nan IMF.  As per nan UN Human Development Index, Pakistan was classed 164 connected a database of 193 countries successful 2023.
 

Published on: May 10, 2025 3:02 PM IST