IMF puts growth below govt target

Express Tribune

30-07-2025

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The International Monetary Fund (IMF) on Tuesday projected Pakistan's economic growth rate at 3.6% for the current fiscal year, below the government's official target of 4.2%. The projection was released in the IMF's latest World Economic Outlook Update report which kept Pakistan's growth forecast unchanged.
The government had set a higher growth goal based on expected recovery in agriculture and industrial sectors. However, the World Bank recently estimated that poverty in Pakistan affects nearly 45% of the population. Official data on poverty and unemployment is currently unavailable, though the Pakistan Bureau of Statistics (PBS) is said to be updating relevant surveys. Due to outdated data, the provisional GDP growth rate of 2.7% for FY2024-25 has been disputed by independent economists. The PBS plans to release findings of the latest Agriculture Census next month, which may address some of these queries.
On the same day, the federal government also briefed foreign diplomats on recent economic developments and sought support to increase foreign direct investment (FDI), which remains low. The diplomats raised concerns over rising debt costs, heavy reliance on costly commercial loans, tax relief measures, and the sustainability of the Power Division's plan to cut circular debt through Rs1.25 trillion in fresh domestic borrowing.
Finance Minister of State Bilal Azhar Kayani and Power Minister Sardar Awais Ahmad Khan Leghari led the briefing for diplomats from the US, UK, EU, Italy, Germany, Canada, Australia, Switzerland, Japan, the Netherlands, and Saudi Arabia. According to a finance ministry press release, officials outlined reforms in taxation and the power sector. Kayani said Pakistan's macroeconomic strategy had shifted from stabilisation to sustained reform. He noted that GDP growth was 2.7% in FY2024-25, and per capita income increased by 10% to $1,824. However, this was based on old and relatively low population estimates.
The finance ministry claimed a 3.1% primary surplus in GDP, the highest in 20 years, though it did not clarify in the press note whether this was for the full year or only the first 11 months.
Inflation dropped to 4.5%, a nine-year low, while the central bank's policy rate was halved from 22% to 11%. The debt-to-GDP ratio also reportedly declined to 69%, indicating improved fiscal management.
Diplomats asked how the government planned to reduce the high cost of external debt. Officials said that the strategy had already been finalised with both the IMF and the World Bank. The finance ministry said the external sector showed resilience, recording a $2.1 billion current account surplus, the first in 14 years and the highest in 22 years. This was supported by strong remittances, higher exports, rising FDI, and stable foreign reserves of over $14.5 billion.
Officials claimed this performance was achieved without heavy reliance on foreign borrowing. However, the central bank purchased at least $7.3 billion from the local market between July and April, which kept the rupee artificially low. This sum exceeded the entire three-year size of the IMF bailout package.
Diplomats were also told that two credit rating agencies had recently given Pakistan positive reviews, and Moody's is expected to upgrade the country soon. S&P upgraded Pakistan to 'B negative' last week, advising further political and security stability for continued progress.
In the energy sector, Leghari told diplomats that significant milestones had been achieved, although questions remained over their long-term sustainability. He said the circular debt, now around Rs2.4 trillion, was being addressed under a plan agreed with the IMF.
The government has secured Rs1.25 trillion in commercial loans to pay down a large portion of this debt. The repayment will be funded through a Rs3.24 per unit electricity surcharge, ultimately borne by consumers. Diplomats questioned whether this approach was sustainable. Leghari acknowledged structural problems such as high tariffs and inefficient pricing, which had made electricity unaffordable for households and industry. These issues had also created fiscal pressures.
To address them, the government has undertaken broad-based reforms centred on tariff rationalisation, fiscal responsibility and operational improvement. Leghari said progress had been made in stabilising circular debt in FY2025.
He also pointed out the need to modernise energy planning to account for seasonal demand shifts, regional supply gaps, and the rising role of distributed generation.
Distribution company performance was another key focus. Leghari said infrastructure upgrades and strengthened governance were underway to reduce losses, with reforms implemented to ensure regional equity and institutional coordination.
He called on foreign governments and global investors to invest in the energy sector, citing $2-3 billion in potential across grid modernisation, renewable energy, distribution efficiency, and energy services. He also noted that the government aims to privatise electricity distribution companies, with three companies being restructured for privatisation by early 2026.
Chairman FBR, Rashid Langrial, briefed diplomats on the FBR Transformation Plan, built on three pillars: people, process, and technology. He claimed that real tax collection had increased by 46% due to improved compliance and enforcement.
He also stated that the tax-to-GDP ratio rose to 10.24% in FY2025, up from 8.8% in FY2024.
However, Pakistan still missed its IMF revenue target by 0.3% of GDP, despite levying record-high taxes last year.