Pakistan’s economy is teetering on the edge of something—recovery or relapse, depending on who’s counting. With a 3.1% growth forecast, remittances pouring in, and an IMF lifeline in hand, there’s a pulse of promise. But sluggish starts, climate curveballs, and a towering debt shadow tell a grittier tale.
While Pakistan’s economic horizon is flickering with cautious hope, the government predicts a 3.1% growth spurt for the current fiscal year, buoyed by a near-balanced current account and a steady stream of remittances from its diaspora. Looking ahead, the plan is to keep the stabilization train chugging into next year while aiming for a loftier 4.5% growth target. During a recent sit-down with the IMF, the Finance Ministry laid out its roadmap for 2024-25 and 2025-26, painting a picture of slow but steady progress. Inflation is expected to hover around 7%, though these numbers still need a green light from the federal cabinet and the National Economic Council.
This year’s 3.1% growth falls shy of the ambitious 3.6% goal but syncs with what global financial watchdogs have been saying. The services sector is set to lead the charge, while agriculture limps along at a modest 1.3%—a reminder of how vulnerable the country remains to nature’s whims, like floods or droughts that could rattle farms, roads, and the broader economy.
With the Tarbela and Mangla dams nearing their dead levels, the Indus River System Authority (Irsa) has warned Punjab and Sindh — the country’s key agricultural provinces — to prepare for water shortages of up to 35% as the current crop season draws to a close. In a letter to irrigation secretaries, Irsa informed all four provinces that both reservoirs were alarmingly close to their dead levels. “There is a likelihood that Punjab and Sindh may face a 30-35% shortfall as the reservoirs operate on a run-of-the-river basis at or around dead levels,” it warned.
According to Irsa’s latest data, Tarbela Dam currently holds just 73,000 acre-feet of water, with its level at 1,409 feet — a mere nine feet above its dead level of 1,400 feet. Daily discharge figures suggest that both Tarbela and Mangla dams could hit their dead levels within days, aligning with Irsa’s earlier forecast at the start of the Rabi season on October 2, 2024, which projected this depletion by the first 10 days of March 2025. While reservoirs reaching dead levels is not uncommon — sometimes occurring twice a year — the timing is particularly concerning. The wheat crop, already impacted by lower-than-expected sowing due to shifting government policies, is at a crucial stage requiring its final round of watering, with harvest expected by the end of the month.
Inflation’s tamed to a 6-7% range, a far cry from the 12% once feared, thanks to a stable rupee, cheaper non-perishables, and a high base effect from last year’s spike. Next year should follow suit, if all goes as planned.
But the first quarter of 2024-25 was a slog, with growth crawling at just 0.92%. Nominal GDP might hit 11.5%, though analysts warn it could dip into single digits if inflation or growth stumble. That’s bad news for the Federal Board of Revenue (FBR), already Rs606 billion short of its eight-month target, scraping together Rs7.34 trillion. The forecast’s now been trimmed to Rs12.48 trillion, a sign of tighter times ahead.
On the flip side, the current account deficit has been shrunk to a sliver—between $130 million and $500 million, or 0.1% of GDP—down from last year’s $1.7 billion hole. The catch? Import curbs and a lean foreign currency stash are propping up this fragile balance.
Meanwhile, China tossed Pakistan a $2 billion loan rollover. This comes as Pakistan claws its way back from the brink with a $7 billion IMF bailout locked in September 2024. The first chunk is under review, with $1 billion more on the line if it clears. External cash has long been the IMF’s golden ticket for approving rescues for the cash-strapped nation, which faces a daunting $22 billion debt bill in 2025—including $13 billion in bilateral deposits, per Fitch’s latest tally.
The World Bank’s December debt report laid it bare: China’s Pakistan’s top lender, holding nearly $29 billion of its $130.85 billion external debt pile. That’s 352% of exports and 39% of gross national income, with debt payments eating up 43% of export earnings. The World Bank (18%, $23.55 billion), Asian Development Bank (15%, $19.63 billion), and Saudi Arabia (7%, $9.16 billion) trail behind as big creditors.
Next year, the government sees the current account gap widening to $3 billion—0.7% of GDP—as exports climb to $33 billion and imports hit $59 billion. Banking on stronger exports, capped imports, steady income flows, and those trusty remittances, officials are threading a needle. Pakistan’s economy is a tightrope act: one part resilience, two parts grit, and a whole lot riding on the next move.
Pakistan’s walking a fine line—growth’s flickering, deficits are shrinking, and the IMF’s watching closely. Yet, with agriculture at risk, revenues faltering, and $22 billion in debt looming, it’s less a sprint to stability and more a marathon of nerve. Remittances and rollovers are buying time, but the real test lies ahead: can grit and good plans outpace the storms on the horizon?