Pakistan's economy pulled off ‘macroeconomic miracle' in past two years: Barron's
Barron's, an American weekly magazine and newspaper published by Dow Jones & Company, has lauded Pakistan's recent economic turnaround, terming it a 'macroeconomic miracle of sorts'—while also underscoring the fragility and deep structural risks the country still faces.
'The country of 255 million has pulled off a macroeconomic miracle of sorts over the past two years,' read the report published on Tuesday, highlighting key economic indicators suggesting macroeconomic stability, including a significant decline in the inflation rate from a record 38% in May 2023 to 0.3% in April 2025.
'Eurobonds maturing in 2031 have soared from 40 cents on the dollar to 80 cents. The Pakistan Stock Exchange index has tripled. Prime Minister Shehbaz Sharif's government reached a $7 billion stabilization agreement with the International Monetary Fund (IMF) last September,' with over $2 billion already disbursed, highlighted the report.
'Pakistan is a good story,' Genna Lozovsky, chief investment officer at Sandglass Capital Management, which buys distressed emerging markets debt, told Barron's. 'So good it's not risky enough for us anymore.'
The report was of the view that the latest armed conflict with the neighbouring India 'won't likely knock Pakistan's recovery off course'.
A sentiment shared by Finance Minister Muhammad Aurangzeb, who earlier told Reuters that the skirmish was a 'short duration escalation' with minimal fiscal impact, stating it can be 'accommodated within the fiscal space which is available to the government of Pakistan'.
Meanwhile, Barron's noted that Pakistan remains largely dependent on international creditors, especially the IMF, and remains under the lender's bailout programme.
'Pakistan has been known for boom-and-bust cycles throughout its history,' notes Khaled Sellami, an emerging markets sovereign debt manager at Barings.
However, Sellami sees some signs that this time could be different. 'The current account balance is positive, and they have a primary fiscal surplus [excluding interest payments],' he observed. 'That's something we haven't seen in many years,' Sellami said.
Meanwhile, Alison Graham, chief investment officer at frontier markets specialist Voltan Capital Management, told Barron's that everyone thought Pakistan would default along with Sri Lanka in 2023.
Instead, the State Bank of Pakistan (SBP) raised interest rates from 10% to 22%, a move that proved crucial in controlling inflation.
It is pertinent to mention that since June 2024, the Pakistani central bank has cut the policy rate by 1,100bps, which currently hovers at 11%.
'[Moreover] Pakistan's sovereign creditors—China, Saudi Arabia and the United Arab Emirates—rolled over their loans without extending new credit. Gross domestic product growth bounced back to 2.5% last year, and the country's books are uncustomarily balanced,' the report noted.
However, Barron's pointed out that challenges remain for the South Asian country, as Islamabad, being under an IMF programme, 'is supposed to increase its tax take by half and slash electricity subsidies, among other uphill battles'.
Moreover, Pakistan needs to up the ante on the export front.
'Cotton, apparel and cereals account for two-thirds of Pakistan's exports. It is belatedly moving into IT outsourcing, foreign sales rising from near nothing to $3 billion annually over the past few years,' Sellami said, compared to India, which is in the $200 billion range.
The report warned that without a value-added ladder to climb, 'fate and free-spending election cycles may continue driving Pakistan's boom and bust'.
'Pakistan remains extremely fragile to external shocks,' Graham told Barron's. 'When there is a rally, you need to be in early.'
Meanwhile, Sellami remained 'constructive' on Pakistani Eurobonds.
He noted that as Pakistan's strategic importance to the US has diminished, its allies, including China and the Gulf states, have stated that they won't offer blank cheques anymore.
'The government knows if they deviate from the tightrope they are walking, they won't have external finance,' he said.
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