Targeting some key areas, the International Monetary Fund (IMF) has highlighted its $7 billion, 37-month Extended Fund Facility (EFF) with objectives of comprehensive fiscal reforms to stabilize Pakistan’s economy and lay the foundation for sustainable, long-term growth. The strategy identifies energy and governance as two critical sectors plus taxation to both sort out quick-fix and structural problems that have stalled progress in the economy.

Pakistan has promised a spate of policy reforms to ensure that the program will not suffer the same pitfalls that earlier ones had. The new program emphasizes fiscal policy reforms, including bringing the retail and agricultural sectors along with export sectors under the regular income tax regime through massive tax increases as well as removing all exemptions. In addition, Pakistan’s federal and provincial governments are to sign a new national fiscal pact to improve coordination over spending and impose greater fiscal discipline. The IMF is demanding an additional 3 percentage points in tax measures, and Pakistan had finally agreed to the measures despite the level of politics involved.

The EFF program continues to place importance on energy sector reforms. The IMF has asked the government to implement deep cuts in costs and tariffs in the energy sector in a real attempt to drag Pakistan out of its current circular debt problems and into a long-term stability in this sector. Change, along with state-owned enterprise restructuring, is recognized as part of a broader change package required to modernize and improve efficiency and service quality in public utilities.

Pakistan has managed to make some short-term gains, but still it faces issues such as a very hostile business environment and weak governance structures. The IMF insists that comprehensive tax reforms are a matter of urgency, particularly in terms of eliminating sector-specific exemptions and including misrepresented sectors like large-scale agriculture, industrialists, and real estate developers in the tax system.

It also emphasizes building resilience to climate change and through sustainable investment and infrastructure development. Improved and strengthened anti-corruption measures, governance reform will also play a key role for a more competitive economy.

The IMF has been pushing Pakistan to expand its tax base and improve the coordination of fiscal policy at both levels-the federal and the provincial. According to the IMF, only through achieving fiscal sustainability through sound macroeconomic management is it possible to continue to support long-term growth and stability in the country.

For the future, the IMF has projected Pakistan’s GDP growth to be 3.2 percent during the fiscal year 2025 and predicted ease in inflation that would reach around 9.2 percent, which is the harbinger of recovery. An extended arrangement approved by the executive board of the IMF has also been received in an initial tranche of over $1 billion as a bailout package by Pakistan. It expects the Pakistani economy to steadily rebound by FY2025, and GDP growth should increase to 3.2 percent from 2.4 percent in FY2024. In particular for this country of 236 million, this upward trend is particularly significant given that per capita GDP was at $1,572 in FY2024.

Inflation has long been the critical issue over the last one year; latest projections now, however, suggest an easing way ahead. Average consumer price inflation is thus now projected to ease off from FY2024 levels of 23.4% to 9.5% in FY2025. Since June 2024, the SBP has thus eased its path in lowering its policy rate by 450 basis points.

The unemployment rate is projected at 8% in FY2024 and is expected to decline gradually to 7.5 by FY2025. Reforming fiscal policy is believed strongly to be necessary for achieving long term sustainability. Revenue for the government of Pakistan, including grants, is expected to rise from 12.6 percent of GDP in FY2024 to 15.4 percent in FY2025. The fiscal deficit, including grants, would ease to 6.0% of GDP compared to 6.7% during the same period; deficit, excluding grants, to 6.1% of GDP for FY2025.

There is a welcome shift in the general direction: the primary balance of Pakistan-excluding grants-is expected to change from 0.9% surplus in FY2024 to a 2% surplus in FY2025, changing direction from 0.9% deficit in FY2023.

Public debt at 74.9% of GDP, excluding IMF obligations, shrunk to 67% in FY2024 after FY2023 but is expected to surge again to 69% in FY2025. External debt decreased from 28.6% of GDP in FY2023 to 22.6% FY2024 and is estimated to reach 24% FY2025. This is because the current account deficit is expected to shoot to 0.9% at FY2025 from 1.0% of GDP in FY2023 to 0.2% in FY2024. FDI also held steady at 0.5% of GDP this fiscal year and is expected to decline, just slightly, to 0.4% of GDP next fiscal year.

The IMF also predicts substantial improvement in the foreign exchange reserves, increasing from $9.38 billion by FY2024 to $12.76 billion by FY2025, thereby that would suffice for 2.1 months of imports by the end of FY2025.

In conclusion, although the Extended Fund Facility proposed by the IMF sets the road map toward economic recovery and growth, the success of these initiatives will depend only on the commitment made by Pakistan toward reforms necessary for the country. If Pakistan can start to begin to work at solving the deeply ingrained issues in governance, tax compliance, and inefficiency within the energy sectors, it may have a hope of moving towards a much stronger economy. These improvements in projected GDP growth and probable inflation rates can only signal the beginning of turnaround but are surely the persistent efforts that will ensure they become lasting stability and prosperity for the nation.