IMF macroeconomic projections
The press release of the 9th of May by the IMF highlights that the IMF Executive Board has completed the first review of the Extended Fund Facility arrangement with Pakistan. It also indicates the approval of the request for an arrangement under the Resilience and Sustainability Facility.
The last part of this statement includes a set of macroeconomic projections for 2024-25 and 2025-26. As highlighted below, these projections diverge significantly from the initial set of projections made at the start of the Extended Fund Facility in September 2024.
The objective of this article is to analyse these projections of GDP growth, employment, prices, general government finances, monetary and credit and the external balance of payments.
The IMF now expects that the GDP growth rate will be lower than originally projected. This reflects the relatively poor performance of the economy in the first three quarters of 2024-25. The Quantum Index of Manufacturing is down by 1.9 percent up to February 2025. The cotton crop is lower by over 20 percent, while there is no increase in the output of rice or wheat. Overall, electricity sales have fallen by 3 percent.
Consequently, the IMF has now projected the GDP growth rate at 2.6 percent, as compared to the expectation earlier that it would rise to 3.2 percent in 2024-25. Even the projection of 2.6 percent growth appears optimistic.
The projected growth rate originally for 2025-26 was 4 percent. This has now been brought down to 3.6 percent. Clearly, for a higher growth path, the level of private and public investment will have to rise sharply.
There has also been a significant downward revision in the projections of the rate of inflation by the IMF. This clearly reflects the extraordinary drop in the rate of inflation in 2024-25. It has come down every month in 2024-25, from 11.1 percent in July 2024 to only 0.3 percent in April 2025. The monthly average is at 4.8 percent.
The IMF expects the rate of inflation to average 5.1 percent in 2024-25. This implies a significant upsurge in the months of May and June, due to a 'low base' effect. The anticipation is of a significant upsurge in the rate of inflation to almost 8 percent.
Two projections by the IMF appear to be completely out of line with reality. The unemployment rate is estimated at 8 percent in 2024-25 and at 7.5 percent in 2025-26, with the rise in the GDP growth rate. However, the IMF probably does not know that the digital Population and Housing Census of 2023 has estimated the unemployment rate in Pakistan substantially higher: at 22 percent.
The other big understatement is that of the incidence of poverty in Pakistan by the IMF, at only 21.9 percent. This is despite the lack of increase in real per capita income and extremely high inflation in food prices in 2022-23 and 2023-24. The latest estimate of the incidence of poverty is by the World Bank at over 42 percent. This is almost twice the magnitude reported by the IMF.
The substantial understatement of poverty and unemployment by the IMF reveals the absence of a 'human face' to the Programme and a lack of sensitivity to the over 100 million people in Pakistan living below the poverty line. There is need for more focus on pro-poor interventions in the Programme.
Turning to the balance of payments projections for 2024-25 and 2025-26, we see here also a significant divergence from the original set of projections.
The current account deficit had earlier been projected at USD 3.6 billion in 2024-25 and at USD 3.8 billion in 2025-26. The projections now are at USD 0.4 billion deficit only in 2024-25 and at USD 1.6 billion in 2025-26.
Clearly, this is a reflection of the phenomenal growth in workers' remittances of 33 percent in the first nine months of 2024-25. However, it is unlikely that there will be a significant growth in remittances in 2025-26.
The big surprise is the optimism about the balance in the financial account. It is projected at USD 4.4 billion in 2024-25. There was actually a deficit in this account of USD 1.4 billion in the first nine months. Is the IMF expecting a very large inflow of USD 5.8 billion in the last quarter of 2024-25? This is extremely unlikely.
The consequence of this overstatement of the net inflow into the financial account in 2024-25 is a likely over-projection of the level of foreign exchange reserves at the end of the year of USD 13.9 billion. This is also significantly higher than the original estimate of USD 12.8 billion.
There is need for recognition of the negative inflow into the government account of loans net of debt servicing. There has been little success in mobilizing external financing through flotation of Euro/Sukuk bonds and borrowing from international commercial banks.
The optimism about the outcome of the balance of payments is retained for 2025-26. The latest projections reveal that the foreign exchange reserves will rise to USD 17.7 billion by the end of the year. Consequently, the import cover of reserves will come very close to three months. Pakistan will have emerged once again as a financially solvent country by the end of the second year of the ongoing IMF Extended Fund Facility.
Overall, the latest set of IMF projections for 2024-25 and 2025-26 reveals a degree of realism with regard to the growth rate of the economy and the rate of inflation. However, there is a degree of optimism with regard to the balance of payments projections.
Further, the IMF has revealed a degree of insensitivity by grossly understating the rate of unemployment and the incidence of poverty. This is in line with the lack of a 'human face' in the IMF programme.
The next article will take up an in-depth analysis of the public finance projections by the IMF and highlight in particular the implications for the federal and provincial budgets of 2024-25.
Copyright Business Recorder, 2025
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
8 hours ago
- Business Recorder
Pakistan traders, consumers, politicians reject taxation measures
PESHAWAR: Traders, consumers and politicians have rejected the federal budget and warned that imposition of massive new taxes will further push the downtrodden class below poverty. Reacting to the federal government's budget office bearers of various groups of traders, and leaders of political parties in separate statements here on Wednesday pointed out that the rulers failed to provide any relief to the poverty-stricken masses. Qaumi Watan Party (QWP) provincial Chairman Sikandar Hayat Khan Sherpao said the federal budget failed to reflect the aspirations of the people and offered no relief to the public, business community as well as the agricultural sector. He said the budget lacked any measures aimed at economic growth, agricultural revival, or public welfare. He warned that the imposition of massive taxes was likely to have severe negative impacts, particularly on agriculture, which was already facing unprecedented decline. He pointed out that inflation was at its highest level and agricultural degradation was pushing nearly half of the country's population below the poverty line. He remarked 'Instead of curbing its extravagant expenditures, the government has increased them by 17 percent, and this burden will ultimately fall on the poor.' Highlighting regional disparities, Sikandar Sherpao said around 42 percent of the country's population now lived below the poverty line; a number that had surged to 48 percent in Khyber Pakhtunkhwa and nearly 70 percent in Balochistan. 'Despite depriving smaller provinces of their due resources, the government is imposing heavy taxes on them,' he added. Sikandar Sherpao criticised the government for once again failing to allocate promised funds for the merged tribal districts, warning that continued neglect would lead to further underdevelopment and despair in the region. Sikandar Sherpao expressed alarm over the state of agriculture, noting that agricultural output recorded a sharp decline from 6.4 percent growth last year to just 0.65 percent this year. 'This is a matter of serious concern, given our heavy economic reliance on agriculture,' he stated, accusing the government of using IMF conditions as a pretext to overburden the sector with unjust taxes. The QWP leader further said there was little hope for a significant increase in exports under the current circumstances. Regarding the 10 percent salary increase for government employees, he termed it deceptive. 'The government has taken back double the amount through excessive taxation,' he said. He also questioned the rising value of the US dollar in Pakistan while it was declining globally, blaming it on flawed government policies. 'A lower dollar rate would reduce national debt and petroleum product prices,' he observed. Expressing scepticism over the government's ambitious tax target of Rs14,000 billion for the next fiscal year, Sikandar Sherpao noted that it had failed to meet last year's target of Rs12,700 billion. 'How can the government expect to achieve an even higher target when it couldn't meet the previous one?' he asked. The QWP leader warned that the overall impact of the federal budget would lead to a further spike in inflation and hurt the poor. He lamented the lack of specific measures for the development of smaller provinces, saying it would only deepen their sense of deprivation. Similarly, Tajir Itehad provincial president Mujeeb-ur-Rehman, also strongly criticized the budget, calling it a 'budget of numbers' that fails to address the real issues faced by traders and the general public. Mujeeb-ur-Rehman stated that the implementation of new taxes worth Rs. 2,000 billion will make it impossible for businesses to operate. He emphasized that the tax target of Rs. 14,000 billion was unrealistic and will further shrink the economy. He questioned how the government plans to service debts exceeding Rs. 8,500 billion without a viable strategy. He said increasing the petroleum levy from Rs. 78 to Rs. 100 per liter will be detrimental to the economy. He expressed concerns that the ordinance will open new avenues for corruption and bribery. He warned that digital invoicing will empower FBR officers with unlimited powers, making it difficult for businesses to operate. Instead of expanding the tax net, the government is increasing the tax burden on existing filers. He demanded that the condition of paying extra Rs. 2-3 per liter for petrol purchases without a card should be abolished. Electricity prices should be reduced, and 13 types of taxes on electricity should be abolished to promote economic growth. Copyright Business Recorder, 2025
Business Recorder
13 hours ago
- Business Recorder
Investor confidence increasing due to govt policies: Azma
LAHORE: Punjab Information Minister Azma Bokhari has said that investors' confidence is rising due to government policies and the stock exchange is setting new records. Speaking at a press conference at DGPR alongside the Minister for Local Government, Azma Bokhari remarked that Pakistan is currently witnessing a season of positive developments. She said the government has provided substantial relief to salaried individuals by reducing their tax burden, and congratulated the Prime Minister for it. Despite IMF pressure, the federal government presented a balanced and people-friendly budget, she said. 'Those who were hoping for Pakistan's default are still unable to digest any good news that benefits the nation,' she said, adding 'The federal budget 2025-26 provides relief to the people, yet some elements wished that Pakistan would become like Sri Lanka and fail to secure the IMF programme.' Bokhari said that Pakistan Tehreek-e-Insaf (PTI) is the only party that cannot tolerate national progress. She said these same individuals are now running a 'March to Washington' campaign. Over the last year, the Punjab government has achieved significant successes, which these elements find hard to accept. On the day of the budget, the nation witnessed how PTI turned the National Assembly into a marketplace. Their approach has always been, do nothing, and prevent others from doing anything as well, she added. Azma highlighted that the exemplary cleanliness arrangements across Punjab during Eid-ul-Azha were widely appreciated by the public, with citizens offering prayers for the Chief Minister. However, some elements were bothered even by this success. She also mentioned that Federal Railways Minister Hanif Abbasi requested the Punjab government to support cleanliness operations in other areas as well. Azma Bokhari criticised those who raise concerns about parliamentarians' salaries while ignoring the fact that the Prime Minister and Finance Minister draw no salaries. She urged the public to also consider when the last time parliamentary salaries were increased. 'The people like us from middle-class backgrounds are also involved in politics. Should we, too, start a business alongside politics?' she asked. She mocked Goher Ayub's post-defeat statement in Sumbariyal, where he claimed no campaign was run. 'The truth is that these people, along with their YouTubers, are only loud online. On the ground, they have no presence,' she said. She also remarked, 'The 'Field Marshal' is heading to the United States, but let it be clear, honour and disgrace lie in the hands of Allah — and Allah has honoured him greatly.' The Punjab Local Government Minister Zeeshan Rafiq said that during the three days of Eid, exceptional cleanliness arrangements were made across Punjab. The Chief Minister personally oversaw all operations for four days. A total of 315,669 animal remains were collected and disposed of within just three days — a record achievement, he said, adding: 'The 10-day cattle markets were established across Punjab with model arrangements. Around 12,000 public complaints were received and addressed promptly.' He acknowledged that the decision to outsource sanitation services initially drew criticism, but the government acted by issuing notices to companies where complaints of unpaid staff wages emerged. Copyright Business Recorder, 2025
Business Recorder
14 hours ago
- Business Recorder
Traders, consumers, politicians reject taxation measures
PESHAWAR: Traders, consumers and politicians have rejected the federal budget and warned that imposition of massive new taxes will further push the downtrodden class below poverty. Reacting to the federal government's budget office bearers of various groups of traders, and leaders of political parties in separate statements here on Wednesday pointed out that the rulers failed to provide any relief to the poverty-stricken masses. Qaumi Watan Party (QWP) provincial Chairman Sikandar Hayat Khan Sherpao said the federal budget failed to reflect the aspirations of the people and offered no relief to the public, business community as well as the agricultural sector. He said the budget lacked any measures aimed at economic growth, agricultural revival, or public welfare. He warned that the imposition of massive taxes was likely to have severe negative impacts, particularly on agriculture, which was already facing unprecedented decline. He pointed out that inflation was at its highest level and agricultural degradation was pushing nearly half of the country's population below the poverty line. He remarked 'Instead of curbing its extravagant expenditures, the government has increased them by 17 percent, and this burden will ultimately fall on the poor.' Highlighting regional disparities, Sikandar Sherpao said around 42 percent of the country's population now lived below the poverty line; a number that had surged to 48 percent in Khyber Pakhtunkhwa and nearly 70 percent in Balochistan. 'Despite depriving smaller provinces of their due resources, the government is imposing heavy taxes on them,' he added. Sikandar Sherpao criticised the government for once again failing to allocate promised funds for the merged tribal districts, warning that continued neglect would lead to further underdevelopment and despair in the region. Sikandar Sherpao expressed alarm over the state of agriculture, noting that agricultural output recorded a sharp decline from 6.4 percent growth last year to just 0.65 percent this year. 'This is a matter of serious concern, given our heavy economic reliance on agriculture,' he stated, accusing the government of using IMF conditions as a pretext to overburden the sector with unjust taxes. The QWP leader further said there was little hope for a significant increase in exports under the current circumstances. Regarding the 10 percent salary increase for government employees, he termed it deceptive. 'The government has taken back double the amount through excessive taxation,' he said. He also questioned the rising value of the US dollar in Pakistan while it was declining globally, blaming it on flawed government policies. 'A lower dollar rate would reduce national debt and petroleum product prices,' he observed. Expressing scepticism over the government's ambitious tax target of Rs14,000 billion for the next fiscal year, Sikandar Sherpao noted that it had failed to meet last year's target of Rs12,700 billion. 'How can the government expect to achieve an even higher target when it couldn't meet the previous one?' he asked. The QWP leader warned that the overall impact of the federal budget would lead to a further spike in inflation and hurt the poor. He lamented the lack of specific measures for the development of smaller provinces, saying it would only deepen their sense of deprivation. Similarly, Tajir Itehad provincial president Mujeeb-ur-Rehman, also strongly criticized the budget, calling it a 'budget of numbers' that fails to address the real issues faced by traders and the general public. Mujeeb-ur-Rehman stated that the implementation of new taxes worth Rs. 2,000 billion will make it impossible for businesses to operate. He emphasized that the tax target of Rs. 14,000 billion was unrealistic and will further shrink the economy. He questioned how the government plans to service debts exceeding Rs. 8,500 billion without a viable strategy. He said increasing the petroleum levy from Rs. 78 to Rs. 100 per liter will be detrimental to the economy. He expressed concerns that the ordinance will open new avenues for corruption and bribery. He warned that digital invoicing will empower FBR officers with unlimited powers, making it difficult for businesses to operate. Instead of expanding the tax net, the government is increasing the tax burden on existing filers. He demanded that the condition of paying extra Rs. 2-3 per liter for petrol purchases without a card should be abolished. Electricity prices should be reduced, and 13 types of taxes on electricity should be abolished to promote economic growth. Copyright Business Recorder, 2025
