Tariffs, geopolitical tensions: IMF warns Pakistan of rising external risks
ISLAMABAD: International Monetary Fund (IMF) has warned that external risks are increasing, notably from the economic and financial impact of the April 2 US tariff announcements and subsequent market reaction, broader geopolitical tensions and elevated global economic policy uncertainty, with potential spillovers to (already tight) global financial conditions and commodity prices.
The Fund in its latest report also stated that domestic political economy pressures to unwind and delay reforms remain present and may intensify, which would quickly eviscerate Pakistan's hard-won economic stability.
Uncertainties around the impact of recent tariff announcements on Pakistan's economic and financial conditions are significant, with risks skewed to the downside.
Trade tensions to affect Pakistan more in region: IMF
More broadly, geopolitically driven increases incommodity prices, tightening in global financial conditions, weakening of remittances, or higher trade barriers in other trading partners could adversely affect external stability. The other main immediate risk relates to policy slippages given pressures to ease policies and provide tax and other concessions and subsidies to connected interests.
The report further noted that an intensification of political or social tensions could also weigh on policy and reform implementation. Finally, climate-related risks are substantial, driven by both Pakistan's high exposure to natural disasters and large adaptation and mitigation needs.
Amid an increasingly uncertain external environment, geopolitical frictions could adversely impact external stability via higher commodity prices, a tightening in global financial conditions, or greater protectionism in key trading partners. Considering Pakistan's high exposure to natural disasters, weather-related events could further elevate fiscal and external pressures.
In view of this, it is critical that policy and structural reforms are implemented consistently, and delays or slippages are avoided as they could jeopardize the nascent economic recovery and the path to debt and external sustainability, and could adversely impact the external financing outlook, including from bilateral partners, it added.
IMF further stated that part of Pakistan's challenge is a lack of policy consistency and continuity. Policies, budgets, and programs related to climate risk have thus far been subject to changing political currents. As a result, although climate-change issues have featured in Pakistan's overall development policies since the 2012 National Development Strategy (NDS), specific actions or implementation steps have been lacking.
The first National Climate Change Policy (NCCP 2012) provided guidelines for developing national adaptation and mitigation plans across sectors, but in practice, it had little impact on sectoral programs. Three years later, in its first Intended Nationally Determined Contribution (INDC 2015), Pakistan made a handful of very limited commitments to mitigation and adaptation but has not moved significantly beyond that point.
One reason is that government ownership of climate change policy and responsibilities for action has been fragmented. For the past several years, this responsibility has shifted between different institutions and levels, with blurred lines of responsibility and weak forms of accountability.
Additionally, challenges exist in transferring environmental, water, agriculture and climate-change policies and programs from the national level down to the provincial level, and across sectors.
With the advent of devolution in Pakistan, the provinces became responsible for sectoral policies and implementation within their respective jurisdictions.
As a result, although the Ministry of Climate Change has the overall mandate for climate change policy, each province has its own Environmental Protection Agency (EPA) responsible for environmental policy and programs within that province. This includes climate-change mitigation and adaptation measures. Two provinces have also set up climate-change centres under their EPAs.
Copyright Business Recorder, 2025
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