The International Monetary Fund (IMF)-supported reform agenda is expected to boost Pakistan’s economic growth in fiscal year 2025 (FY25), as outlined in the Asian Development Bank’s (ADB) Asian Development Outlook.
The ADB forecasts a growth rate of 2.8% for Pakistan in FY25, bolstered by the 37-month Extended Fund Facility (EFF) agreement with the IMF. Following a rebound to 2.4% growth in FY2024, average inflation dropped to 23.4%, down from 29.2% the previous year.
This positive economic shift is attributed to fiscal discipline, a market-driven exchange rate, and enhanced energy sector efficiency. Increased agricultural income and higher remittances have also supported private consumption, while improved crop yields helped stabilize food prices.
The IMF-supported reforms are anticipated to create a more stable macroeconomic environment, fostering economic activity. Private investment is expected to rebound as macroeconomic conditions improve, including better access to foreign exchange, benefiting the manufacturing and services sectors.
However, the ADB raised concerns about rising personal income tax rates and government spending restrictions that could limit private and public consumption in FY25. Additionally, agricultural sector growth may slow due to higher gas prices and reduced fertilizer subsidies.
The report indicates that public debt is likely to decrease as a percentage of GDP, although interest payments constitute nearly 60% of fiscal revenues. Inflation is projected to moderate to 15% in FY25, aided by tighter monetary policies and stable global commodity prices.
The current account deficit is expected to remain moderate but could rise to 1% of GDP in FY25, while the trade deficit may widen with increased imports as economic activity picks up. Nonetheless, higher remittances and improved access to multilateral financing through the IMF program should help offset some of this deficit.
Despite a larger current account deficit, international reserves are expected to grow to 2.1 months of import coverage by FY25. The ADB cautioned that Pakistan’s economic outlook remains vulnerable to external financing shortfalls and potential policy implementation issues that could strain the exchange rate and increase debt risks.
External risks, including geopolitical tensions and rising food and oil prices, may also affect Pakistan’s macroeconomic stability. However, improved global financing conditions and lower international food and fuel prices could help mitigate fiscal and external vulnerabilities.
Overall, Pakistan’s economy has shown notable improvement, driven by economic discipline, increased agricultural income, and remittances, contributing to a steady recovery with GDP projected to grow by 2.8% in FY25, up from 2.4% the previous year.
The decline in inflation is primarily linked to enhanced agricultural production and more stable food prices. Looking ahead, the ADB predicts that inflation will continue to decline, reaching around 15% by 2025 due to stable monetary policies and improved exchange rates.
Financial discipline and a better business environment have been vital in stabilizing Pakistan’s economy, creating a foundation for private-sector growth, although challenges in the agricultural sector persist. The ADB stresses that Pakistan must continue implementing economic reforms, especially in state-owned enterprises, and promote private investment to mitigate financial risks and ensure long-term sustainable growth.
