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• Raises economic growth forecast modestly from 2.6pc in FY25 to 3.2pc for FY26
• Inflation decelerates sharply, but price stability remains fragile
• Debt burden and weak investment keep recovery prospects uncertain
WASHINGTON: The latest International Monetary Fund (IMF) projections for Pakistan suggest that the immediate risk of economic free fall has eased but the country remains locked into a narrow stabilisation path marked by weak growth, heavy debt and limited relief for households.
Projections by the Fund, released early on Tuesday alongside the statement announcing a fresh disbursement of around $1.2 billion to Pakistan, showed that the country’s economic growth was projected to inch up from 2.6 per cent in FY25 to 3.2pc by FY26, a pace that barely matches population growth in the country of 240.5 million people.
With a per capita income of $1,677, this trajectory points more to economic containment than recovery.
Pakistan’s population also continues to grow at a high pace, with mid-2025 official figures citing 2.55pc, while World Bank data points to 1.8-1.9pc. Though slightly lower than past peaks, the rate remains a significant development challenge.
Pakistan, however, appears to have made the most striking turnaround in inflation. After averaging 23.4pc in FY24, consumer prices are estimated to have fallen sharply to 4.5pc in FY25, and projected to rise to 6.3pc in FY26.
End-period inflation is also projected to ease from 12.6pc in FY24 to 3.2pc in FY25, before climbing to 8.9pc in FY26. The disinflation reflects tight monetary policy, lower subsidies and compressed demand under the IMF programme, though the projected rebound suggests price stability remains fragile.
Labour market conditions offer limited comfort. Unemployment is projected to fall only modestly from 8.3pc in FY25 to 7.5pc in FY26, underscoring the weak job-creating capacity of the current growth path.
On the fiscal front, the adjustment underway is substantial. Government revenue and grants are projected to rise from 12.7pc of the gross domestic product (GDP) in FY25 to 16.3pc by FY26, while expenditure is expected to remain near 20pc of GDP.
As a result, the budget deficit is projected to narrow from -6.8pc to -4.0pc of the GDP. Pakistan is also projected to maintain a primary surplus rising to 2.5pc of the GDP, a central IMF benchmark.
Despite this tightening, the public debt burden remains heavy. Total general government debt, including IMF obligations, is projected to hover around 72-73pc of the GDP, while government and guaranteed debt is expected to stay near 76pc.
Domestic debt accounts for nearly half of the GDP, keeping interest costs elevated amid high domestic borrow-ing rates.
External pressures have eased but vulnerabilities persist. The current account balance is projected to remain close to zero, shifting from a 0.6pc of GDP deficit in FY24 to a 0.5pc surplus in FY25, before slipping back into a small deficit in FY26. Foreign exchange reserves are projected to rise from $9.4bn in FY25 to $17.8bn by FY26, lifting import cover from 1.6 months to 2.7 months — an improvement, but still short of comfortable levels.
Foreign investment, however, remains subdued. Foreign direct investment (FDI) is projected at just 0.5-0.6pc of the GDP throughout the period under review, pointing to persistent investor caution despite improved macro stability.
Monetary conditions also remain tight. Broad money growth is projected in the 14-16pc range, while private sector credit growth, though improving from 6pc to 15pc, remains constrained by high interest rates. The six-month treasury bill rate stood at 21.5pc in FY24, reflecting the heavy cost of domestic borrowing.
Meanwhile, the 15.4pc real effective appreciation of the rupee in FY25 signals a shift towards currency stability after a period of sharp depreciation, though it also carries risks for export competitiveness in an economy where textiles, valued at $17.3bn, remain the dominant export.
Taken together, the IMF projections depict an economy that has regained short-term stability through sharp fiscal and monetary adjustment, but remains burdened by high debt, weak investment and slow employ-ment growth.
The immediate crisis may have passed, but the challenge of translating stabilisation into sustained, inclusive growth remains unresolved.
Published in Dawn, December 10th, 2025
