Pakistan external inflows to rebound after IMF nod: Jameel Ahmed

Pakistan’s external inflows have remained sluggish in the current fiscal year but are expected to rebound in the final quarter following the International Monetary Fund’s (IMF) approval of a tranche, according to State Bank of Pakistan (SBP) Governor Jameel Ahmad.

The $3 billion arrangement under the IMF program is critical to meeting the country’s debt obligations, Ahmad said during a recent briefing.

The governor revealed that Pakistan’s total debt repayment for fiscal year 2025 is projected at $26 billion, including $22 billion in principal and $4 billion in interest. Of this total, $16.2 billion is expected to be rolled over, with the majority already secured, leaving $3 billion outstanding.

Ahmad further detailed that out of the $10 billion not rolled over, $7 billion has already been paid, and $3 billion remains pending.

Ahmad acknowledged that external inflows have been lower than both last year’s figures and the central bank’s estimates. However, he expressed optimism that inflows would accelerate in the final quarter, following the IMF review's completion.

The country’s real GDP growth is forecasted to range between 2.5% and 3.5% for FY25, aligned with prior projections. Economic activity is anticipated to gain momentum in the latter half of the fiscal year, aided by easing financial conditions.

In agriculture, satellite data has indicated improved prospects for Rabi crops following recent rains, although certain risks persist.

High-frequency indicators, including automobile sales, cement and petroleum product consumption, import volumes, and private sector credit, suggest that economic activity is picking up. Consumer and business confidence has also shown improvement, as reflected in recent surveys.

However, large-scale manufacturing (LSM) remains a concern, having contracted by 1.9% during the first half of FY25. The decline has been attributed to a few low-weight sectors, which have offset growth in key industries.

Responding to a question on car financing, the governor stated that the PKR 3 million auto-financing limit would remain in place for now, though the situation would be reviewed going forward.

Fiscal and primary balances improved in the first half of FY25 compared to the previous year, bolstered by robust revenue growth and controlled expenditures, including subsidies.

Nevertheless, a tax revenue shortfall widened further in January and February, posing challenges to achieving the primary balance target. The Monetary Policy Committee (MPC) stressed the need for structural reforms to expand the tax base.

The MPC also noted that the recent 1,000-basis-point interest rate cut is beginning to positively influence economic activity. Headline inflation has significantly declined in recent months, driven by lower food and oil prices and base effects.

However, inflation is projected to rise to 5%–7% in the medium term, with core inflation and potential food and energy price increases posing risks.

The committee highlighted several key developments, including the current account deficit recorded in January after months of surplus, a drop in SBP reserves due to weak inflows and high debt repayments, an expanded tax revenue shortfall in early 2025, and global uncertainty amid new tariffs.

Given these dynamics, the MPC underscored the importance of maintaining a cautious monetary stance to stabilize inflation and ensure macroeconomic stability.