(Maria Mansab)
In its recent country report in October 2024, the International Monetary Fund (IMF) commended Pakistan’s effective policy implementation and reforms under the 2023–24 Stand-By Arrangement (SBA). The report highlights the collaborative efforts of Pakistan’s government, state institutions, stakeholders, and military leadership in addressing fiscal challenges and driving economic recovery. The IMF praised Pakistan for making “economically sound” decisions that have helped restore macroeconomic stability and laid the foundation for long-term sustainable growth.
The broader economic landscape in Pakistan has shown encouraging signs of recovery, with the economy rebounding to a growth rate of 2.5% in FY24. IMF Projects that GDP growth will further accelerate to 3.2% by FY25, driven by ongoing reforms that are enhancing the economic outlook.
This positive momentum has also translated into job creation, with the unemployment rate anticipated to decline from 8.5% in FY23 to 7.5% in FY25. Such progress reflects the beneficial impact of these reforms, contributing to improved livelihoods and greater economic inclusion.
A significant driver of this growth has been the impressive recovery of the agriculture sector, which achieved a remarkable growth rate of 6.4% in FY24 from 4.4% in FY22, marking its highest performance in 19 years. This resurgence is largely attributed to innovative government initiatives, including the Special Investment Facilitation Council (SIFC) and the Green Pakistan Initiative (GPI), both of which have played crucial roles in revitalizing the sector.
IMF Managing Director Kristalina Georgieva commended Pakistan’s achievements, stating, “Growth is up, inflation is down, and the economy is on a sound path.” This positive assessment is a reflection of the collaborative efforts across various sectors, including tax reform, which has been pivotal to improving Pakistan’s fiscal health.
One of the central areas of focus has been Pakistan’s efforts to broaden its tax base, simplify tax policies, and improve revenue mobilization. Pakistan’s tax-to-GDP ratio stood at 9.2% in FY22. However, the IMF projects that this ratio will rise by approximately two percentage points to reach 11% by FY25, marking its highest level in seven years.
Additionally, total revenue, including grants, is expected to increase from 11.5% of GDP in FY23 to 15.4% by FY25. This improvement has been driven in large part by the restructuring of the Federal Board of Revenue (FBR), which has undertaken significant reforms aimed at enhancing both efficiency and accountability within the organization.
Perhaps one of the most significant achievements during this period has been the significant reduction in inflation. From a peak of 38% in May 2023, inflation has fallen sharply to 6.9% by September 2024, thanks to coordinated fiscal and monetary policies.
The State Bank of Pakistan (SBP) played a critical role in this success by maintaining tight monetary policies until inflation was brought under control. As inflation eased, the SBP reduced the policy rate by 450 basis points, bringing it down to 17.5%. This move is expected to stimulate further economic activity, encourage investment, and help accelerate growth in line with the IMF’s projections.
IMF also praised the remarkable improvement in Pakistan’s current account deficit, which narrowed to just $0.2 billion of GDP in the first quarter of FY25, down from $0.5 billion in FY24 and a much larger $13.8 billion in FY22. This marks the lowest level since FY11 and is a clear indicator of the success of Pakistan’s fiscal consolidation efforts.
Pakistan’s gross reserves have also witnessed a significant boost, nearly doubling from $4.5 billion in FY23 to $9.4 billion in FY24. These reserves, now covering about 1.6 months of next year’s imports, are projected to rise further, reaching $12.8 billion by FY25. The improved foreign exchange market conditions, along with reduced current account deficits, have contributed to this positive development.
The ability of the Pakistani rupee, which appreciated 277.63 against the US dollar, demonstrates increasing confidence in both the currency and the overall economy. The narrowing gap between official and parallel market rates further highlights this increasing confidence.
One of the key achievements of Pakistan’s progress is the enhancement of governance and transparency through digital reforms. This shift towards digital governance underscores the government’s commitment to fostering a more transparent and efficient system, which in turn enhances public confidence in state institutions and improves service delivery. As a result, private sector credit is projected to grow significantly, from 3.9% in FY24 to 16.0% by FY25, reflecting an improved business environment and rising investor confidence.
Pakistan’s economic turnaround under the 2023–24 Stand-By Arrangement (SBA) has been driven by successful policy implementation and reforms. The IMF’s acknowledgment of these efforts delivers a strong rebuke to the pessimistic narratives predicting Pakistan’s default, economic failure, and international isolation. Contrary to these bleak projections, the IMF report highlights the significant strides Pakistan has made on both domestic and international fronts. The global community has taken note of these achievements, recognizing the country’s proactive reforms and strategic partnerships. With sustained dedication to reform, Pakistan is well-positioned to capitalize on these advancements, fostering new opportunities for economic growth, employment generation, and long-term prosperity in the coming years.
The columnist is an MPhil scholar from Quaid-e-Azam University and a freelance writer. She can be reached at mariamansab@ir.qau.edu.pk
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