IMF projects Pakistan’s GDP growth reaching 4.5% in the medium term

Pakistan's real gross domestic product (GDP) growth is projected to rebound gradually over fiscal years 2025-27, reaching 4.5% in the medium term. This recovery will be driven by reduced fiscal drag, steady reform implementation, and improving financial conditions and confidence.

According to an International Monetary Fund (IMF) report, continued tight monetary and fiscal policies are expected to sustain recent disinflation, with inflation returning to the central bank's 5-7% target range by FY26.

Building on FY24's fiscal consolidation, the FY25 budget aims for a primary surplus of 1% of GDP, supported by permanent tax measures and improved revenue collection.

The primary surplus is expected to increase to 2% by the end of the program, strengthening debt sustainability and allowing for more social and development spending.

The current account deficit is projected to remain modest at around 1% of GDP from FY25-FY28, reflecting increased imports and exports due to recovering domestic demand and supportive program policies.

Gross reserves are expected to reach $22.5 billion by the end of FY28, up from $9.4 billion this June. Multilateral disbursements are projected to total $14 billion over FY25–28, including significant contributions from the World Bank and the Asian Development Bank.

Modest short-term borrowing from commercial banks is anticipated for FY25-FY26, with a gradual return to bond markets by mid-FY27.

Public debt is expected to remain sustainable over the medium term, with stronger fiscal consolidation than previously anticipated. The debt-to-GDP ratio is projected to fall to around 60% by FY29.

However, near-term risks remain high due to Pakistan's large financing needs and challenges in obtaining external funding. Real interest rates are expected to impact debt dynamics adversely in the coming years.