IMF report shows current account deficit at 0.4% of GDP for current fiscal year
Pakistan faces more than $8 billion in external debt maturities in FY25 (not including $13 billion in regularly renewed bilateral loans) and any delay in debt refinancing may endanger the IMF program. photo: file
ISLAMABAD:
The International Monetary Fund (IMF) on Tuesday forecast Pakistan’s economic growth rate of 3.6 percent for the current fiscal year, with Finance Minister Muhammad Aurangzeb expressing hope that a staff-level agreement for the lender for two tranches worth $1.2 billion would be reached this week.
The IMF released the Washington World Economic Outlook report, which put Pakistan’s economic growth rate at 3.6 percent. But it specifies that Pakistan’s economic projections “do not yet reflect the impact of floods in summer 2025, the impact of which is still being assessed.”
The negative implications of the floods on economic growth, inflation, the budget and the external sector are one of the outstanding issues hampering the finalization of the staff-level agreement for the completion of the second review of the bailout plan, according to government sources.
Contrary to forecasts of economic growth of 3.6%, the sources said that during last week’s inconclusive discussions, IMF staff had forecast growth of 3% to 3.5%. They said the IMF believes the recent floods have weighed on the economic outlook, particularly for the agricultural sector, given the damage to Kharif’s main crops.
The government has already adjusted its ambitious target downward from 4.2% to 3.5% while the World Bank made a forecast of 2.6% for the same reason.
The sources said that even in the medium term, the IMF did not forecast an economic growth rate above 4.5% for Pakistan, which also depends on supporting a significant increase in exports and investments.
The global report was released on a day when Pakistan’s finance minister, also in Washington, “hoped” the country would reach a staff-level agreement this week for two loan tranches totaling $1.2 billion.
In an interview with Reuters, Aurangzeb said that “during this week we hope to be able to conclude the agreement at the personnel level.” Earlier, Aurangzeb met Jihad Azour, Director of the IMF’s Middle East and Central Asia Department and discussed the issue of signing the agreement at the staff level.
A press release from the Ministry of Finance said the two sides exchanged views on Pakistan’s reform agenda and reaffirmed their common commitment to maintaining the current reform momentum. The meeting reviewed progress made under the second review of the Extended Financing Facility (EFF) and recognized the importance of maintaining macroeconomic discipline, the ministry added.
The IMF team returned to Washington last week without reaching a staff-level agreement to complete the second review of the $7 billion bailout, due to differences on four key issues. These outstanding issues coincide with the official release of the governance and corruption diagnostic assessment report, the main budget surplus target and the budgetary impact of flood losses.
The Global Outlook report forecasts an inflation rate of 6% for Pakistan, which may once again experience changes due to the impact of floods. During last week’s discussions, the IMF team said headline inflation was expected to remain in the 5-7% range before temporarily overshooting the target towards the end of the fiscal year due to unfavorable base effects on food and energy prices, the sources said.
The IMF report showed a current account deficit at 0.4% of GDP for the current fiscal year while the Finance Ministry projected a deficit at 0.2% of GDP.
The Finance Ministry also said Aurangzeb met with Robert Kaproth, assistant secretary of the US Treasury for international finance, and advisor Jonathan Greenstein. During the discussion, the minister highlighted Pakistan’s strong economic fundamentals, supported by the ongoing IMF programme, the statement added.
Aurangzeb briefed US Treasury officials on recent Pakistani legislation to regulate virtual assets. He further invited American companies to explore investment opportunities in Pakistan’s oil and gas, minerals, agriculture and information technology sectors, according to the Ministry of Finance.
Global outlook
The IMF has revised its global economic forecast for calendar year 2025 upwards from 2.8% to 3.2%, due to the smaller than expected negative impact of the US tariff wall on global trade. He also revised upwards forecasts for US economic growth to 2% and China’s to 4.8%.
The outlook report says 2025 was fluid and volatile, with much of the momentum driven by a reordering of policy priorities in the United States and other economies’ policies adapting to new realities.
He adds that trade news has dominated headlines and, at the same time, perceived prospects for the global economy have fluctuated. A series of new tariff measures taken by the United States have raised tariff rates to levels not seen in a century.
Nevertheless, tariffs are a long way from returning to 2024 levels. Trade policy uncertainty remains high in the absence of clear, transparent and sustainable agreements between trading partners – and as attention begins to shift from the eventual level of tariffs to their impact on prices, investment and consumption, according to the outlook report.
Previously, fears of a tariff shock in April and the associated uncertainty with which it unfolded prompted the IMF to revise the global growth projection for 2025 downward, by half a percentage point, to 2.8%.
But the IMF said more protectionist trade measures have had a limited impact on economic activity and prices. Growth continued in the first half, with annualized quarterly year-over-year growth rates persisting at around 3.5%.
The unexpected resilience of activity and weak inflation response reflect – apart from the fact that the tariff shock turned out to be weaker than initially expected – a series of factors that provide temporary relief, rather than underlying strength in economic fundamentals, the report adds.
Households and businesses have accelerated their consumption and investments in anticipation of higher tariffs. This provided a temporary boost to global activity in early 2025. Trade flows began to adjust, with diversion to third countries captured in high-frequency data, according to the IMF.
