 |
| Pakistan's GDP lowered from an earlier estimate of 3.2% to 3% | Photo: AP |
The International Monetary Fund (IMF) has revised Pakistan's economic growth forecast for the fiscal year 2024-25, lowering it from an earlier estimate of 3.2% to 3%. The updated projection was released in the IMF's latest global economic outlook.
However, the growth forecast for the 2025-26 fiscal year remains unchanged at 4%.
While the IMF did not provide specific reasons for the reduction, local reports suggest that declining cotton production and a slowdown in industrial activity are key factors affecting the country’s economic performance.
Pakistan's Economic Challenges
Pakistan's economy has been facing severe difficulties for years, with inflation reaching 38% in 2023 and food inflation hitting 48%. According to the Pakistan Bureau of Statistics, the prices of essential commodities have risen sharply. For instance, in 2022-23, urban tomato prices soared by 188%, onions by 84%, vegetables by 55%, and sugar by 37%. Meanwhile, utility costs such as gas and electricity increased by 319% and 73%, respectively.
Mounting Debt Crisis
Economic mismanagement has led to a growing debt burden, with 60% of government revenue going toward interest payments. Pakistan faces the challenge of repaying $70 billion in foreign debt over the next five years, despite the central bank holding just $11 billion in reserves.
Some analysts suggest that Pakistan declare a debt default and restructure its economy, similar to Sri Lanka's approach. Others recommend complying with the IMF’s three-year austerity program, although such measures could exacerbate public suffering without a lasting solution.
IMF Loan Programs and Tax Reform
Pakistan has relied on IMF loans in recent years and is currently negotiating a new $7 billion loan program. The program aims to increase the country’s tax-to-GDP ratio by 2% in the first year a target Pakistan has historically struggled to meet. Achieving this could place additional financial pressure on citizens.
Lessons from Sri Lanka
Sri Lanka, another South Asian nation, has made strides in recovering from its economic crisis by reducing inflation and stabilizing its exchange rate. In contrast, Pakistan’s progress remains limited to a slight decline in inflation, with no notable improvement in other key economic indicators.
Recommendations for Economic Recovery
Experts suggest expanding the scope of income tax collection and pushing for bilateral and multilateral lenders to extend new loans while renewing existing ones. These measures could enhance economic liquidity and foster growth.
Pakistan’s path to economic stability remains fraught with challenges, and the government’s next steps will be crucial in determining its long-term recovery.