Pakistan can turn trade risks into opportunity with right reforms, says IMF

Trade tensions in the global economy are likely to impact Pakistan more than the average in the region, but the impact can be offset by other measures that would allow the country’s economy to reposition itself in the world, according to Jihad Azour, Director of the Middle East and Central Asia Department at the International Monetary Fund (IMF).

Azour made these remarks during a press conference on Friday.

Azour highlighted that Pakistan is undergoing significant economic transformation, presenting opportunities to reposition its economy and address potential risks. He noted that changes in global trade routes could also create benefits for the country.

Pakistan has made progress in restoring macroeconomic stability over the past 18 months, Azour said.

Economic indicators show improvement, with inflation dropping from 12.6% in the 2024 fiscal year to 6.5% this year. Inflation is expected to remain steady at this level next year.

Additionally, Pakistan's debt is stabilizing, and international rating agencies have recently upgraded the country’s credit rating.

Azour warned, however, that the global economy is at a delicate crossroads. Trade tensions, financial volatility, and geopolitical fragmentation pose significant risks to global growth.

The recently imposed U.S. tariffs on Middle Eastern and Central Asian economies have had limited direct effects due to exemptions for energy products, but the indirect effects—such as weaker external demand, reduced remittances, and tighter financial conditions—could be more pronounced.

For oil-exporting economies, lower oil prices could lead to deteriorating fiscal and external positions, Azour noted.

While some nations may benefit from trade diversion, these gains are likely to be short-lived within the broader context of trade contraction.

Azour praised Pakistan’s reform package, which aims to achieve fiscal sustainability by addressing long-standing fiscal issues.

The government seeks to increase revenues, reduce the deficit, and improve tax collection systems. Reforms in state-owned enterprises (SOEs) are also a key priority, aimed at leveling the playing field for the private sector, increasing foreign direct investments (FDIs), and making the economy more export-driven.

Azour emphasized that monetary policy is playing a vital role in managing inflation and reducing constraints on capital flows and exchange transfers.

These reforms, along with broader economic measures, are expected to enhance predictability, reduce current account risks, and strengthen macroeconomic stability.

The reform package also targets critical sectors such as energy and SOEs, while improving the overall business environment to attract FDIs and drive export growth.

Azour expressed confidence that these measures would unlock the potential of Pakistan’s economy without negatively affecting the current account.