The International Monetary Fund, in its latest report, has revised global growth downward to 2.8 percent, 0.5 percentage points lower than the earlier forecast of 3.3 percent pre-Trump tariffs in January this year.

The new projection has much to do with President Trump’s announcement of a tariff war against China and other countries. All countries stand to suffer from the state of uncertainty created by President Trump’s bombshell announcement. In the case of Pakistan too, the growth rate has been downgraded to 2.6 percent for the current year.

Sometime back the Asian Development Bank downgraded Pakistan’s growth rate to 2.5 percent for the current year, against the 3.5 percent budgeted for the year by the government. It may be added here that the growth rate was downgraded by the State Bank of Pakistan in its half yearly July-December 2024 report, which stated that “the economic recovery achieved in FY2024, with GDP growth rate of 2.5 percent against a contraction of 0.2 percent in FY2023, has sustained positive growth of 0.92 percent in the first quarter of FY2025. However, growth has slowed compared to the 2.3 percent recorded last year, reflecting moderation across key sectors, particularly in agriculture.”

In the opinion of experts, due to the tight fiscal and monetary policies under the ongoing IMF programme, the Fund’s projection of 2.6 percent may have to be further downgraded by the end of the current fiscal year, especially as the US has imposed a 29 percent tariff on Pakistani imports. The SBP Governor recently said that Pakistan has successfully moved from a period marked by macroeconomic instability— high inflation, low reserves, and fears of default—to one of stable macroeconomic conditions, renewed confidence, and recovery in economic growth. In this context, he cited significant improvements in various economic indicators, signalling a revival of economic growth. For example, inflation has come down, external current account balance has turned into a surplus, forex reserves have markedly improved, and public debt indicators are in a positive zone. Further, workers’ remittances reached an all-time high level of USD 4.1 billion in March 2025 – partly reflecting the result of government and SBP efforts to incentivize the inflows via formal channels, as well as smooth functioning of the domestic forex market. It is now projected that the total remittances for fiscal year 2025 will touch the level of USD 38 billion.

So far so good. But what about the various negative signals flashing in key sectors of the  economy? According to the latest figures, the poverty level has risen to 44 percent in spite of a decline in the inflation rate and stabilisation of the Pakistani rupee against the dollar. The inflation figure quoted by official circles is contradicted by the realities on the ground. For example, both petrol and electricity charges remain inordinately high despite a steep fall in the international oil market. Medicine prices are also unaffordable for a large section of the population.

The elephant in the room is the IMF programme which in the name of stabilisation severely stifled economic growth in the last three years. IMF’s harsh conditionalities have resulted in an inordinate increase in utility charges, while a restrictive import policy has led to a shrinkage of the manufacturing sector. Overall, unemployment has increased with a concurrent rise in poverty.

The situation is not likely to improve markedly as long as the economy remains tied to IMF’s apron strings. Long-term, sustainable economic improvement requires development of indigenous resources, not dependence on foreign loans from bilateral or multilateral agencies. In this regard, an essential need is a reduction in current expenditure which has ballooned in the last few years. Alarmingly, current expenditure has been raised continuously in successive budgets showing an unwelcome tendency on the part of policy makers to overspend despite limited fiscal space. Also, there has been strong criticism in the country of the government’s recent decision to heftily increase the pay and allowances of law makers as well as bureaucrats despite the country facing an economic crunch.

Economic experts are of the view that unless the government abjures its profligate habits, we will continue to go around the world with a begging bowl in our hand. An estimated 30 percent can easily be cut from current expenditure without affecting the present level of efficiency. Overgenerous petrol, electricity, phone and housing allowances as well as free travel given to higher echelons of officialdom in Pakistan have no parallel anywhere in the world and must be curtailed drastically. Equally important is to shut wings and divisions at the federal level which still exist despite the subjects having been devolved to the provinces. These measures will result in large savings and obviate the need to borrow from indigenous and external sources.