Despite positive strides in stabilizing the economy, persistent challenges remain. The successful completion of the first review of Pakistan’s economic reform program by the IMF executive board marks a significant milestone, facilitating the disbursement of a $700 million tranche. With this disbursement, the cumulative total under the $3 billion Stand-By Arrangement has reached $1.9 billion.

The IMF’s acknowledgment of the government’s policy measures to address economic vulnerabilities and promote sustainable growth is reflected in the successful review and subsequent financial support. Macroeconomic indicators signaling stability, as highlighted in the IMF’s statement, include a 2% GDP growth rate projected for FY24, improved revenue collection, fiscal strengthening in the first quarter of FY24 resulting in a primary surplus of 0.4% of GDP, an increase in gross State Bank of Pakistan (SBP) reserves to $8.2 billion in December 2023, and a stable exchange rate held at 22% since June 2023. Despite the positive trends, the current inflation rate of around 30% is expected to decrease to 18.5% by the end of FY24.

However, the IMF’s statement also identifies challenges, such as high inflation affecting vulnerable groups, undercapitalized financial institutions requiring government support, state-owned enterprises in need of reform and restructuring, escalating climate events, governance issues, and the absence of an effective anti-corruption mechanism.

The IMF projects a challenging economic scenario for Pakistan, with a Consumer Price Index (CPI)-based inflation anticipated to average 24% in the fiscal year 2023-24. It is expected to decrease to 18% by the end of June 2024. The IMF emphasizes the need for the State Bank of Pakistan to maintain strict monetary policy and a market-based exchange rate to effectively manage these pressures.

Current data reveals an 8% unemployment rate and a 21.9% poverty level in Pakistan. However, the World Bank’s projections suggest a potential rise in the poverty level to 40%. The IMF underscores the importance of tight monetary control to stabilize the economy and mitigate the impact of inflation on vulnerable populations.

The IMF’s approval of a $700 million installment under the $3 billion Standby Arrangement (SBA) is part of a comprehensive economic reform program initiated to address domestic and external imbalances and serve as a policy framework for global financial support. Antoinette Sayeh, Deputy Managing Director and Chair of the IMF, commended Pakistan’s progress in stabilizing the economy. She stressed the ongoing need for revenue mobilization, spending discipline, and broad-based fiscal reforms to create room for social and development spending. The IMF also emphasized the significance of structural reforms to enhance the business environment, advance state-owned enterprise reforms, strengthen governance and anti-corruption measures, and build climate resilience.

The State Bank of Pakistan anticipates a gradual easing of the inflation rate to around 20-22% in the 2024 financial year, as per a report issued ahead of the February 8 general elections. As per the State Bank of Pakistan (SBP) governor’s annual report for the past fiscal year, the bank is committed to taking measures to prevent high inflation from becoming deeply rooted.

The report highlights that in FY23, the economy significantly missed its fiscal and primary surplus targets, experiencing a contraction in real GDP by 0.2 percent. During the same period, Pakistan faced its highest-ever inflation, leading to the rupee reaching historic lows. The situation was mitigated by a $3 billion bailout from the International Monetary Fund, preventing an imminent sovereign default in July.

The report noted that the average inflation, measured by the consumer price index, escalated to 29.2 percent in FY23, aligning closely with the upper limit of the bank’s revised projections. It emphasized the central bank’s commitment to anchoring inflation expectations, aiming to achieve its medium-term target of 5-7 percent. The fiscal and policy measures implemented both before and after the IMF bailout are contributing to the stabilization of Pakistan’s $350 billion economy as the country approaches national elections.

In the recent evaluation conducted by the International Monetary Fund (IMF), Pakistan’s strides in economic stabilization are acknowledged, yet underlying challenges persist. The successful conclusion of the first review of Pakistan’s economic reform program by the IMF executive board signifies a notable achievement, paving the way for the disbursement of a crucial $700 million tranche.

The IMF’s recognition of policy initiatives to address economic vulnerabilities and foster sustainable growth is evident in the positive review and subsequent financial support. This assessment reveals macroeconomic indicators reflecting stability, including a projected 2% GDP growth rate for FY24, enhanced revenue collection, fiscal strengthening resulting in a 0.4% primary surplus of GDP in the first quarter of FY24, an upswing in gross State Bank of Pakistan (SBP) reserves to $8.2 billion by December 2023, and a stable exchange rate maintained at 22% since June 2023. However, despite these positive trends, the current inflation rate of approximately 30% is anticipated to decrease to 18.5% by the end of FY24.

Nevertheless, the IMF’s statement identifies challenges, encompassing high inflation affecting vulnerable groups, undercapitalized financial institutions necessitating government support, state-owned enterprises in need of reform and restructuring, escalating climate events, governance issues, and the absence of an effective anti-corruption mechanism.

The IMF paints a challenging economic scenario for Pakistan, projecting a Consumer Price Index (CPI)-based inflation to average 24% in the fiscal year 2023-24, with an expected decrease to 18% by the end of June 2024. Emphasizing the imperative of maintaining a strict monetary policy and a market-based exchange rate, the IMF outlines measures for effective pressure management.