ISLAMABAD: In the aftermath of clinching a deal with the International Monetary Fund (IMF) under the $7 billion Extended Fund Facility (EFF) in 2024, Pakistan has stabilised its macroeconomic fundamentals and come out of the mantra of facing risk of default.
Now in 2025, the economy is all set to achieve a higher growth trajectory. Although the macroeconomic fundamentals have improved, the growth is low and insufficient to reduce poverty and unemployment.
Pakistan’s economy has witnessed a boom and bust cycle several times and 2025 is all set to provide new opportunities to avoid repetition committed in the past. The lack of investment and savings had always perpetuated and inflicted instability by surfacing twin deficits known as the current account deficit and fiscal deficit.
It will be a challenge for policymakers to bring a paradigm shift in the structure of Pakistan’s economy where growth trajectory will have to abandon reliance on import-led growth and will require to move towards export led growth. Now the positive development of acquiring shares of Reko Diq by Saudi Arabia will help the government to generate momentum for attracting more foreign direct investment in Pakistan.
How was is macroeconomic stability achieved?
Pakistan has graduated successfully from nine-month months Standby Arrangement (SBA) to $7 billion EFF program of the IMF in 2024 as it created buffer on account of accumulated foreign exchange reserves which now stood at $11.8 billion held by the State Bank of Pakistan and after incorporation of foreign reserves of the commercial banks, total foreign exchange reserves stood at $16.37 billion by end of December 2024. The foreign exchange reserves held by the SBP is sufficient to meet import cover of two and half month’s period. Minister for Finance Mohammad Aurangzeb is predicting that the foreign exchange reserves would go up to fulfill three months import coverage by the current fiscal year ending on June 30, 2025.
The Consumer Price Index (CPI) based inflation also receded more rapidly than expected and came down to 4.9 percent after witnessing a peak of 38 percent in the recent past. This sharp decline in inflation has helped the State Bank of Pakistan (SBP) to reduce policy rate from 22 percent to 13 percent, which would help the economy to kick-start sluggish economic activities in the months ahead.
GDP growth momentum?
The Gross Domestic Product (GDP) stood at 2.5 percent for the last fiscal year 2023-24 ended on June 30, 2024 and the envisaged target for FY2025 was envisaged at 3.5 percent. For the first quarter (July-September) period, the GDP growth is hovering around 0.92 percent backed by agriculture sector 1.15 percent, industry negative growth of -1.03 percent and services 1.43 percent. The industrial growth in the recent months has turned from negative to positive but still facing problems on account of higher input cost.
The overall size of Pakistan’s economy stands at Rs.105.6 trillion or $373.3 billion. Further, per capita income in rupees terms is 472,263 and in dollar terms $ 1669.
The International Financial Institutions (IFIs) are projecting that Pakistan’s growth might be standing in the range of 2 to 2.5 percent for FY2025. The journey of higher growth momentum will get pace in the second half of 2025 provided the political stability and consistency in policy is guaranteed over the medium term.
