ISLAMABAD: Despite strengthening its fiscal position during the first quarter of FY24, Pakistan’s economic outlook remains “still challenging,” the International Monetary Fund said in a report released this week.
Pakistan, reeling from the effects of devastating floods in 2022 and an economy that saw its foreign exchange reserves plummet and its currency weaken significantly, took painful measures during 2023 that saw inflation skyrocket to unprecedented levels.
In July 2023, the IMF approved a much-needed 9-month Stand-By Arrangement (SBA) with Pakistan for $3 billion to support the country’s economic stabilization program. The last-gasp deal helped the South Asian country avoid a looming sovereign default. On Jan.11, the international lender completed its first review of Pakistan’s program, allowing for the disbursement of $700 million.
Inflows from the IMF and a rollover of $2 billion from the UAE this week helped Pakistan shore up its foreign exchange reserves and stabilize its exchange rate.
“Fiscal performance has also improved, with the general government achieving a primary surplus in FY24Q1,” the IMF said in its latest country report on Pakistan, published on Friday.
“Despite this welcome progress, the outlook is still challenging, and downside risks remain exceptionally high.”
The IMF report acknowledged that Pakistan’s macroeconomic conditions have “generally improved,” adding that the country’s fiscal position also strengthened during the first quarter of FY24.
“Inflation remains elevated, although with appropriately tight policy, this could decline to 18.5 percent by end-June 2024,” the report said. “Gross reserves increased to $8.2 billion in December 2023, up from $4.5 billion in June, while the exchange rate has been broadly stable.”
The IMF said Pakistan’s current account deficit is expected to rise to around 1.5 percent of its gross domestic product in FY24 as its economic recovery takes hold.
“Assuming sustained sound macroeconomic policy and structural reform implementation, inflation should return to the State Bank of Pakistan’s (SBP) target and growth continue to strengthen over the medium term,” it added.
The report comes with Pakistan weeks away from national polls, and at an important time for the South Asian country as it bolsters efforts to stabilize its economic landscape and reinforce collaborative ties with international financial institutions and allies.