IMF warns Pakistan of external risks amid regional uncertainty

The International Monetary Fund (IMF) has cautioned Pakistan that the external environment remains highly volatile and unpredictable, warning that any escalation in regional tensions could significantly undermine the country’s fragile path to economic recovery.

During ongoing technical-level talks under the $7 billion Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF), the visiting IMF review mission flagged multiple downside risks to Pakistan’s external account, including geopolitical tensions, rising global commodity prices, and reduced investor confidence.

“Any deterioration in the regional geopolitical environment may result in higher global commodity prices, weaker economic growth, and a decline in foreign investors’ risk appetite,” IMF officials conveyed to Pakistani negotiators, according to sources present in the discussions.

The warning comes at a time when Pakistan is still reeling from the economic aftermath of devastating flash floods, which have led to a downward revision of key macroeconomic targets.

During the discussions, Pakistani authorities formally proposed revisions to several key macroeconomic indicators originally outlined in the FY25-26 budget.

Islamabad has proposed to lower down GDP growth target from 4.2% to 3.5%, foreign exchange reserves from $17 billion to $14 billion, inflation target to 7% to 8%. It has also proposed that the export target also be revised downward, citing flood-related disruptions in agriculture.

Meanwhile, Pakistan has also assured the IMF that contingency measures are being developed to respond to potential external shocks, including further energy price hikes or global interest rate volatility.

According to Rapid Needs Assessments (RNA) conducted at the provincial level, the recent floods have caused economic losses exceeding PKR 650 billion. These figures are still under review by international development partners, including the World Bank and the Asian Development Bank (ADB), who have yet to finalize and validate their independent assessments.

While Pakistan has presented its revised macroeconomic framework, sources said the IMF has not yet formally responded. The Fund’s position is expected to be clarified during high-level meetings scheduled for Tuesday and Wednesday, where both sides aim to finalize adjustments to growth, inflation, revenue, and spending targets.

Sources added that a staff-level agreement is likely once both sides reach consensus on the revised framework, taking into account flood related damages and heightened external risks.