IMF projects Pakistan's GDP growth at 3.6% for FY26, below govt target of 4.2%
The fund in its latest report, 'World Economic Outlook Update, Global Economy: Tenuous Resilience amid Persistent Uncertainty', upgraded GDP growth estimates for the last fiscal year 2024-25 by 0.1% to 2.7%.
Finance Division in its monthly economic outlook for June 2025 claimed that real GDP grew by 2.68% in the fiscal year 2024-25.
Finance ministry projects July inflation at 3.5-4.5% as price pressures ease
The World Bank has projected GDP growth rate for Pakistan at 3.1% for the fiscal year 2026 and the Asian Development Bank (ADB) at 3% for FY26. In its latest report, ADB revised Pakistan's GDP growth estimate for fiscal year 2025 slightly upward to 2.7% from its earlier projection of 2.5%.
IMF stated that global growth is projected at 3% for 2025 and 3.1% in 2026. The forecast for 2025 is 0.2 percentage point higher than the reference forecast of the April 2025 WEO and 0.1 percentage point higher for 2026.
'This reflects stronger-than-expected front-loading in anticipation of higher tariffs; lower average effective US tariff rates than announced in April; an improvement in financial conditions, including due to a weaker US dollar; and fiscal expansion in some major jurisdictions,' it added.
The report further stated that global headline inflation is expected to fall to 4.2% in 2025 and 3.6% in 2026, a path similar to the one projected in April.
The overall picture hides notable cross-country differences, with forecasts predicting inflation will remain above target in the United States and be more subdued in other large economies. Risks to the outlook are tilted to the downside, as they were in the April 2025 World Economic Outlook.
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Express Tribune
2 hours ago
- Express Tribune
Learning from Russia's supply-side flat tax reforms
US and Russian officials met in Saudi Arabia on Tuesday for the first high-level talks between the two countries since the Kremlin's full-scale invasion of Ukraine nearly three years ago.. PHOTO: FILE Listen to article Between 1998 and 2000, the Russian economy was down to its knees. The government was severely underfunded with an inefficient tax system marked by high tax rates and rampant tax evasion. The central bank of Russia was forced to finance government spending by printing rubles, leading to hyperinflation, debt default and the devaluation of the currency. The newly appointed Russian President Vladimir Putin embarked on a pro-growth agenda; so good that it made the anti-growth IMF sick to its stomach. Keeping the IMF at bay, Putin implemented a tax reform policy taken page after page from the supply-side playbook, creating a structure of incentives that fuelled production and investment. His tax reform hit the entire spectrum of producers from individuals to large corporations to small entrepreneurial ventures. Putin firmly committed himself to his aggressive agenda, reducing fears that tax reforms would be temporary. He made tax evasion less profitable and integrated an underground economy that thrived for years with an above-ground market economy. Russia's recovery, effective January 1, 2001, started with a flat 13% personal income tax applicable to worldwide income received by Russian tax residents. The flat rate replaced a progressive tax structure that ranged from 12-35%. Applicable income included earnings, bonuses and other forms of compensation. There was no capital gains tax and gains from the disposal of assets were taxed at a flat 13% rate. Gains from real estate held for more than five years and other assets held for more than three years were exempted from income tax. Effective January 1, 2001, under payroll taxes, the Unified Social Tax replaced payments by corporate taxpayers to four separate off-budget funds: the pension fund, social insurance fund, medical insurance fund and employment fund. The combined tax burden used to be 38.5% of annual gross salaries paid by employers, and in addition, employees paid 1% of their salaries to the pension fund. Later, these taxes were combined and collected as one single tax payable by employers and were regressive in nature. The tax had been levied on the following scale: 35.6% on the first RUB 100,000 ($3,200) of income; 20% on earnings from RUB 100,000 ($3,200) to RUB 300,000 ($9,600); 10% on earnings from RUB 300,000 ($9,600) to RUB 600,000 ($19,000) and 5% on all earnings above RUB 600,000 ($19,000) (reduced to 2% in 2002). The employee contribution was eliminated. Effective January 1, 2002, Russia implemented a new corporate profit tax of 24%, reduced from 35%. Dividend income received by Russian organisations from domestic organisations was taxed at 6%, lowered from 15%. The new lower tax rate came at a cost of some former tax benefits, including the capital investment allowance that allowed corporations to reduce their effective tax burden significantly, but also included improved depreciation rules. VAT (value-added tax) was still levied at a standard rate of 20% with a few exceptions taxed at 10%. Sales tax was levied by regional officials but in most cases set at a maximum of 5%. Effective January 1, 2003, a new tax system was implemented for small businesses that have less than 20 employees and earn less than RUB 10 million ($320,000) in annual sales. Such qualifying companies were able to choose between paying 8% of annual gross revenues or 20% of annual net profits. They were also able to write off 100% of capital expenditure immediately. This new tax system was in lieu of tax payments for the Unified Social Tax, VAT, sales tax, property tax and corporate profit tax for these companies. Under the existing tax law for small businesses, up to 50% of operating capital was estimated to be lost to taxes and regulatory fees. Effective July 1, 2001, the mandatory surrender of export earnings was reduced from 75% to 50%. This liberalisation of currency controls meant that Russian companies must now only sell 50% of foreign currency earnings in exchange for rubles. Turnover taxes, considered very detrimental to investment climate, since even unprofitable companies can suffer substantial taxation, were completely wiped out of the Russian tax code. Under land reform, a new land code had been adopted, confirming the right to private property for both foreign and Russian citizens by legalising the ownership of urban land. The aim was to enhance property rights and encourage private ownership as well as encourage the use of property as collateral in transactions. Transparency in real estate transactions was a key component for attracting foreign investment in Russia. Putin knew that his No 1 priority was economic growth. Despite sharply lowering tax rates across the broad, tax revenue as a share of GDP expanded robustly under the new tax regime. Tax revenue increased 51% in 2001 over collections in 2000, expanding from 11% to 16% of GDP. The Russian economy continued to grow robustly, which led to budget surpluses and the government's fiscal balance sheet in a very positive position. Annual growth went up from 2% to an average of 7% and the budget deficit from 2% to a surplus of 3% of GDP. Another key area of concern regarding Russia's future was its foreign debt burden. The following three years of prosperity, starting in 2001, allowed the government to accelerate its external debt repayments, in such a way that the external debt, which was at 130% of GDP in 1999, went down to 50%. Putin's most significant accomplishments had been the achievement of political stability. Such stability served as a catalyst for a revised risk analysis concerning foreign and domestic investment in Russia, integrating the country into the modern industrial global economy by transitioning from a centrally controlled command economy to a market-based economy. The positive economic development in Russia led to a consistent upgrading of its sovereign credit rating from CCC- (1998) to B+ (2002) and an outlook upgrade from stable to positive, with reform momentum and the commitment to timely debt service cited as key factors for the change in the outlook. Russia's renaissance is proof that supply-side economic reforms and the flat tax works. The odds of Russian recovery, according to the IMF, were slim to none. The players, however, who bet on Russian red would have broken the bank. Russia had risen from ashes to establish herself as one of the global economy's bright spots. Even in 2001 with weaker oil markets, Russian equities significantly outperformed, the ruble remained stable and the economy continued to expand. Now, if only we in Pakistan could import these supply-side flat tax reforms, keeping the IMF at bay, to our shores! The writer is a philanthropist and an economist based in Belgium
Express Tribune
2 hours ago
- Express Tribune
Climate not behind agri-sector fall
Listen to article Pakistan's GDP growth exceeded expectations during FY24. It proved wrong everyone, including international organisations, experts, and policymakers. A deep dive into GDP data revealed that the major push came from agriculture. Despite bad governance, climatic factors, and a distorted market, agriculture showed remarkable performance. It posted a growth rate of 6.25%, driven by the crop sector, which grew by 11.3%. Unfortunately, agriculture struggled to sustain momentum in 2025. The growth rate dropped to 0.56% from 6.25% in 2024. The crop sector grew by -6.82% in 2025, compared to 11.3% in 2024. Major crops, such as wheat, sugarcane, cotton, and rice – key contributors to agricultural GDP — faced significant losses. Wheat experienced a negative growth rate of -8.9%, with the government attributing it to climate change and reduced production areas. Interestingly, for sugarcane and rice, although their cropping areas increased by 1.1% and 7.2%, respectively, their production decreased by -3.4% and -1.38%. Cotton saw the worst decline, contracting by 30.7%. These figures are very concerning given the ongoing issues of poverty, food insecurity, and unemployment in Pakistan. The World Bank estimated that about 44.7% of the population lives below the poverty line, which is a troubling statistic. Additional analysis reveals that 16.5% of the population is living in extreme poverty. They struggle to meet basic daily needs and face uncertainty about their future. It has also been predicted that the poor performance of agriculture has contributed to a 0.2% increase in poverty in rural areas. This is a serious situation. Poverty is growing, even though the government claims to be investing in poverty reduction programmes like the Benazir Income Support Programme (BISP). This also raises questions about the effectiveness and sustainability of BISP. Each year, Pakistan spends billions of rupees on BISP. But what is the result? Poverty keeps increasing. Second, food insecurity remains a major concern. A 2013 study estimated that 58.8% of Pakistan's population was food insecure. Unfortunately, we are still relying on old data because the government hasn't updated Pakistan's food insecurity data. There are concerns that food insecurity has risen over time due to various factors. First, poor economic conditions and the devaluation of the PKR have significantly reduced people's purchasing power, leaving fewer resources to buy healthy food. Second, weak governance of the agricultural sector has led to lower production and reduced availability of high-quality food. The government blames climate change for the poor performance, but a closer look at the data shows that isn't the full story. The true cause of the agricultural decline is poor governance – the government's consistent ignorance and pro-market, or specifically pro-private sector, policies. Now, under the International Monetary Fund (IMF) direction, Pakistan has left farmers at the mercy of the private sector and climate change. It devises and enforces policies that favour the private sector at the expense of farmers. For example, last year, the government allowed market forces or the private sector to dictate and control the agricultural input market. The private sector exploited farmers by manipulating prices and input availability. Farmers scrambled from one market to another to obtain inputs but faced numerous difficulties. Most farmers were unable to secure the necessary inputs at the right time, which negatively impacted crop production. The farmers were protesting and voicing their concerns, but the government refused to intervene. The government believed that interfering in the market would disrupt free market principles and was, therefore, unwilling to intervene. On the other hand, the government forgets the free-market principles when it comes to agricultural products. It artificially sets the prices of commodities and forces farmers to sell their commodities at government prices. For example, the Punjab government has announced the wheat price at Rs2,900 per 40kg. It is an injustice to the farmers because it is lower than the cost of production. The farmers claim that the cost of production for 40kg is around Rs4,000, and the Punjab government is asking them to sell wheat at Rs2,900. In this way, the farmers are incurring a loss of Rs1,100 per 40kg. Now, the question is why the government is interfering in the private market and forcing farmers to sell their product at a loss. Isn't it against the market law? The government claims that it wants to protect the poor. In this context, then, what about the poor farming community? Why should the government protect the poor at the cost of the poor farming community? The second example is the sugar crisis. First, the government allowed the sugar industry to export sugar, resulting in an abnormal price increase. Now, it is allowing the same sector to import sugar, and the arrival time will be during the crushing season. It will enable the industry to exploit farmers. The above discussion suggests that poor governance and government preferences are significantly impacting the agricultural sector, leading to the downfall of the farming community. Unfortunately, this policy is not limited to the present government; the successive governments, political and military, have systematically destroyed agriculture and the farming community. The fall of farmers will lead to the collapse of agriculture. It will impact the country on multiple fronts, including the unavailability or high cost of inputs, a sharp increase in unemployment, poverty, and food insecurity, among other consequences. Therefore, the government will have to take immediate steps to reverse the process. It will have to decide on the market structure, either to leave it to market forces with the invisible hand or to adopt a free market approach with the firm visible hand. It is suggested that the government should pursue a free market, but with a strong, visible hand, not an invisible one. Also, the government will need to develop policies that help farmers lower production costs and enable low-income consumers to afford food. One possible option can be a double-edged subsidy policy. On the one hand, subsidies should be limited to small farmers with landholdings of up to 12.5 acres, in different slabs. For example, farmers with less than one acre should be provided with essential inputs free of charge, and those with 2.5 acres should receive them at half price. Similarly, farmers with less than 7.5 acres should be given a 30% subsidy, and those with up to 12.5 acres should receive a 20% subsidy. Farmers with 25-50 acres should be entitled only to a 10% subsidy. A similar formula should be applied on the consumption side. Government should also divide the consumers into four groups: 1) group-1, people connected with BISP, 2) group-2, people with a monthly income of Rs50,000, 3) Rs100,000, and 4) above Rs100,000. The wheat distribution should be as Rs1200/40kg, Rs1800/40kg, Rs2200/40kg, and wheat at market price, among groups, respectively. This strategy will not only help farmers but also shield the urban poor. The same formula can be applied to other commodities, such as grams, onions, garlic, and meat. THE WRITER IS A POLITICAL ECONOMIST AND A VISITING RESEARCH FELLOW AT HEBEI UNIVERSITY, CHINA
Express Tribune
2 hours ago
- Express Tribune
IMF's Washington Consensus versus Beijing Consensus
Listen to article "Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back," said John Maynard Keynes, the founder of Keynesian thought in economics, in the final chapter of his pathbreaking book — The General Theory of Employment, Interest and Money in 1936. Today, Keynes's words may well apply to the economic policies that govern Pakistan. In our case, the defunct economist was a certain John Williamson, who returned to his Lord some four years ago. Dr Williamson, who held a PhD in Economics from Princeton and taught there and at other prestigious universities such as MIT, served as the chief economist for South Asia at the World Bank from 1996 to 1999. He is best known for coining the term "Washington Consensus" — this was a set of 10 economic policy prescriptions, emphasising fiscal discipline, trade liberalisation, and privatisation. In its original form, Williamson had intended the Washington Consensus to be a rough set of guidelines, to be applied with common sense and flexibility in accordance with the specific needs of the country. Unfortunately, Williamson's carefully laid out treatise fell into the hands of the minions of the World Bank and the International Monetary Fund (IMF). These are institutions known for hiring some of the smartest people and then doing their utmost to squeeze all creativity and independence of thought from their new recruits, rendering them automatons committed to the unquestioning enforcement of what they preach. And so it was that Williamson's loose set of guidelines became gospel, immune to doubt, flexibility, or change — to be applied ruthlessly to "saving" sinking developing economies around the world. It is this prescription — the Washington Consensus – that the IMF has foisted on Pakistan. The ten principles of the consensus are: fiscal discipline, cutting subsidies, tax reform, market-based interest rates, competitive exchange rates to encourage exports, trade liberalisation such as reducing duties on imports, encouraging foreign direct investment, privatisation, deregulation, and finally, respect for property rights. All these principles, for some time now, have been pushed down the throat of Pakistan's government. The question is: has the Washington Consensus worked for Pakistan? A simple comparison with China, which followed sufficiently distinct policies to merit the name "Beijing Consensus," may provide an answer. The numbers tell the story. In 1962, China's GDP per capita was $70, while Pakistan's was $90. By 1973, there was a brief reversal: China had $155 and Pakistan still $90. By 1980, China's figure was $308 and Pakistan's $479. This gap continued until 1993, when China decisively began pulling ahead. Today, China's GDP per capita is more than eight times that of Pakistan. To understand why, let's contrast the Washington Consensus as applied to Pakistan with the Beijing Consensus followed by China. Pakistan adopted many Washington Consensus-style reforms, especially under IMF programmes and structural adjustment policies. Here's how they played out: 1) Fiscal discipline: Pakistan struggled with high fiscal deficits. Reforms aimed to reduce government borrowing, but persistent debt and inefficient spending remained challenges. 2) Tax reform: Efforts to broaden the tax base were made, but Pakistan's large informal economy and tax evasion limited success. 3) Privatisation & deregulation: State-owned enterprises were privatised, but outcomes were mixed, some sectors saw efficiency gains, others faced backlash due to job losses and poor regulation. 4) Trade liberalisation: Tariffs were reduced and markets opened, but domestic industries often couldn't compete, leading to trade imbalances. 5) Foreign direct investment (FDI): Policies encouraged FDI, but political instability and weak infrastructure deterred sustained inflows. Despite these reforms, Pakistan's average growth rate hovered around 3% - far below the 7% needed to reduce debt and create jobs. Now, contrast this with the Beijing Consensus: China's model emphasises state-led development, gradual reform, and pragmatic experimentation. Key features include: 1) Strong government role: The state controls key sectors like energy and finance, guiding long-term planning. 2) Incremental reform: Instead of shock therapy, China implemented changes step-by-step, allowing adaptation and stability. 3) Focus on welfare: Development isn't just about GDP – it includes poverty reduction, infrastructure, and quality of life. 4) Export-led growth: China used manufacturing and trade to drive growth, supported by strategic investments and incentives. 5) Merit-based bureaucracy: Officials are rewarded for economic performance, creating incentives for innovation and efficiency. The Beijing Consensus has turbocharged China's growth, transforming it from a neglected backwater into a global economic powerhouse. Since 2000, about 400 million people have been lifted out of extreme poverty in China. The poverty rate has declined from about 40% in 2000 to about 10% today. Contrast this with Pakistan: under the Washington Consensus, poverty has increased from about 35% in 2000 to 45% in 2025. So, what is the lesson here? Any set of policy prescriptions for economic development must not be based on blind dogma, as is the case with the IMF's implementation of the Washington Consensus. Policies must be tailored to the specific circumstances and needs of the country to which they are applied. In this sense, the IMF has rendered a great disservice to Pakistan by compelling us to adopt policies that do more harm than good. THE WRITER IS CHAIRMAN OF MUSTAQBIL PAKISTAN AND HOLDS AN MBA FROM HARVARD BUSINESS SCHOOL
