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Business Recorder
19-05-2025
- Business
- Business Recorder
Trump tariffs to ‘weigh on' Pakistan's economy, says IMF
The International Monetary Fund (IMF) has cautioned that the recent reciprocal tariffs imposed by US President Donald Trump are expected to weigh on Pakistan's exports and economic growth. The Fund in its latest report 'First review under the Extended Fund Facility (EFF) arrangement, requests for modification of performance criteria, and request for an arrangement under the Resilience and Sustainanble Facility (RSF)' noted that though there is considerable uncertainty about the final impact on the economy, the tariffs and subsequent financial market reaction are expected to weigh on Pakistan's exports and GDP, 'with growth revised down marginally in FY25 and around 0.3ppts in FY26'. On April 2, 2025, the US announced a large increase in country-specific tariffs, including a 29% tariff on Pakistan. 'While Pakistan's export sector is relatively small, i.e. 10% of GDP, the US is Pakistan's largest trading partner, with the export of textiles and apparel the largest segment of that trade. 'Although some tariffs may be changed after negotiations, many of Pakistan's competitors in these product segments also face large tariffs at this moment, including Bangladesh (37%), China (145%), India (26%) and Vietnam (46%),' it said. IMF sets 11 new structural benchmarks for Pakistan under $7bn EFF The IMF also highlighted broader indirect effects, stating: 'In addition to the direct impact on Pakistan's exports to the US, Pakistan is expected to face indirect effects including via the impact of the tariffs on the economies of Pakistan's other trading partners, tighter global financial conditions, potentially lower remittances, and increased trade policy uncertainty.' The Washington-based lender said that the net impact on Pakistan's balance of payments is projected to be moderated by the recent commodity price declines and the downgrade in activity, which will reduce Pakistan's import bill. ÏMF noted that Pakistan's sovereign spreads have increased sharply since April 2, but market access to external financing in the near term is already limited, vitiating any near-term impact. 'Nonetheless, if outflow pressures intensify, it will be critical that the exchange rate is allowed to adjust.' Moreover, the net impact on inflation is also projected to be modest, with some downward pressure expected from lower commodity prices and weaker growth, the report added. Last month, Finance Minister Muhammad Aurangzeb told Bloomberg in an interview that Pakistan wants to buy more goods from the United States (US) and remove non-tariff barriers to escape Trump's high tariffs.
Business Recorder
19-05-2025
- Business
- Business Recorder
IMF projects Pakistan's external financing needs at $19.316bn
ISLAMABAD: The International Monetary Fund (IMF) has projected Pakistan's gross external financing needs at $19.316 billion i.e. 4.7 percent of the GDP for the next fiscal year 2025-26. The Fund in its report 'First review under the Extended Fund Facility (EFF) arrangement, requests for modification of performance criteria, and request for an arrangement under the Resilience and Sustainanble Facility (RSF)', stated that the country's external financing need would be $19.757 billion in the fiscal year 2026-27. The Fund stated that the program is fully financed, with firm commitments for the next 12 months and good prospects for the remainder of the Fund-supported program. IMF backs Pakistan's economic recovery, says program implementation has contributed to improved financing Substantial progress has been made in realizing financing committed ahead of the EFF request, with $2.6 billion already disbursed or expected to disburse in the coming months, including from Saudi Arabia, the Islamic Development Bank, and a commercial loan backed by an ADB-partial guarantee. The report noted that firm commitments are also in place for an additional $1 billion of financing in the next 12 months. Key bilateral partners remain committed to rolling over existing short-term liabilities in the remaining program period. Pakistan's capacity to repay the Fund has improved somewhat but remains subject to significant downside risks and critically dependent on policy implementation and timely external financing. The Fund's exposure would peak at SDR 9,466 million in September 2027(466 percent of quota and about 51 percent of projected gross reserves in 2027). Pakistan's outstanding debt to the Fund as a percent of gross international reserves is above the 75 percentile of comparator countries. The three flow indicators (i.e. debt-service to the fund as a percent of government revenues, exports, and gross international reserves) are all above the 75 percentiles of the comparator group, indicating significant risks. Risks to consistent policy implementation include resistance to adoption of reforms, underperformance of tax revenue, high gross financing needs, low gross reserves, and sizeable net FX derivative position of the State Bank of Pakistan, coupled with socio-political tensions, which could erode repayment capacity and debt sustainability. Uncertainty about global geo-economic and financial conditions in major trading partners adds to these risks. Adequate and timely execution of the firm and credible financing assurances from official creditors remains essential to mitigate these risks. The Fund stated that while there is considerable uncertainty about the final impact on the economy, the tariffs and subsequent financial market reaction are expected to weigh on Pakistan's exports and GDP, with growth revised down marginally in fiscal year 2025 (as less than a quarter is left in the year) and around 0.3 percentage points in fiscal year 2026. In addition to the direct impact on Pakistan's exports to the US, Pakistan is expected to face indirect effects including via the impact of the tariffs on the economies of Pakistan's other trading partners, tighter global financial conditions, potentially lower remittances, and increased trade policy uncertainty. The net impact on the balance of payments is projected to be moderated by the recent commodity price declines and the downgrade in activity, which will reduce Pakistan's import bill. Pakistan's sovereign spreads have increased sharply since April 2, but market access to external financing in the near term is already limited vitiating any near-term impact. Nonetheless, if outflow pressures intensify it will be critical that the exchange rate is allowed to adjust. The net impact on inflation is also projected to be modest, with some downward pressure expected from lower commodity prices and weaker growth. 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. The Fund stated that 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. Copyright Business Recorder, 2025
Business Recorder
19-05-2025
- Business
- Business Recorder
IMF sets 11 new structural benchmarks for Pakistan under $7bn EFF
ISLAMABAD: The International Monetary Fund (IMF) has set eleven new structural benchmarks (SBs) for the ongoing $7 billion Extended Fund Facility (EFF) programme including the parliamentary approval of a fiscal year 2026 budget in line with the Fund staff agreement to meet programme targets. The Fund in its latest report 'First review under the Extended Fund Facility (EFF) arrangement, requests for modification of performance criteria, and request for an arrangement under the Resilience and Sustainanble Facility (RSF)', noted that 11 new SBs have been set. The SBs on fiscal side include: (i) parliamentary approval of fiscal year 2026 budget in line with IMF staff agreement to meet program targets and ensure achievement of fiscal objectives (end-June 2025), (ii) implement the new Agriculture Income Tax laws through a comprehensive plan, including the establishment of an operational platform for processing returns, taxpayer identification and registration, a communication campaign, and a compliance improvement plan to protect tax revenue (end-June 2025). Pakistan meets all 7 QPCs, 5 of 8 ITs and SBs: IMF says policy efforts continue to bear fruit On governance side (i) publish governance action plan based on the recommendations of the Governance Diagnostic Assessment with the rationale to publicly identify reform measures to address critical governance vulnerabilities (end-October 2025). On social side (i) annual inflation adjustment of the unconditional cash transfer (Kafaalat) program to maintain UCT real purchasing power (end-January 2026). On monetary and financial side (i) prepare and publish a plan outlining the government's post-2027 financial sector strategy, outlining the institutional and regulatory environment from 2028 onwards to safeguard financial stability (end-June 2026). On energy sector (i) notifications of the annual electricity tariff rebasing and gas tariff adjustment to maintain energy tariffs at cost recovery levels (July 1, 2025), (ii) notification of the semi-annual gas tariff adjustment to maintain energy tariffs at cost recovery levels (February 15, 2026), (iii) adopt legislation to make captive power levy ordinance permanent to promote uptake of electricity grid usage and incentivize more efficient use of energy sources (end-May 2025), (iv) adopt legislation to remove the cap on the debt service surcharge to ensure adequate financing is available for CD conversion operation (end-June 2025). On trade, investment policy, and deregulation side (i) prepare a plan based on the assessment conducted to fully phase out all incentives in relation to Special Technology Zones and other industrial parks and zones by 2035 to improve efficiency and provide a level playing field for investment (end-December 2025), and (ii) submit to parliament all required legislation for lifting all quantitative restrictions on the commercial importation of used motor vehicles (initially only for vehicles less than five years old, subject to meeting minimum environmental and safety standards) to liberalize trade and increase vehicle affordability (end-July 2025). The report noted the authorities met all seven quantitative performance criteria (PCs) for end-December 2024: the floors on (i) net international reserves of the SBP; (ii) targeted cash transfer spending; and (iii) the number of new tax returns from new filers; and the ceilings on (iv) net domestic assets of the SBP; (v) the SBP's FX swap/forward book; (vi) the general government primary budget deficit; and (vii) government guarantees. They also met both continuous PCs on (i) zero new flow of SBP credit to the government; and (ii) zero external public payment arrears. The majority of Indicative targets (ITs) were met at end-December, including the ceilings on: (i) the aggregate provincial primary budget deficit; (ii) net accumulation of tax refund arrears; and (iii) power sector payment arrears; and the floors on (iv) revenues collected by provincial revenue authorities; and (v) the weighted average maturity of local currency debt securities. However, the ITs at end-December were missed for the floors on (i) government health and education spending; (ii) net tax revenues collected by the FBR; and (iii) net tax revenues collected from retailers under the Tajir Dost scheme. Nine SBs were met, including on approval of a National Fiscal Pact, improving safeguards for monetary policy operations and approval of amendments to bank resolution and deposit legislation. Three continuous SBs on not granting tax amnesties, seeking ex-ante parliamentary approval for any non-budgeted expenditures, and the maximum average premium between the interbank and open market rates were also met. The SB on provincial AIT legislation was not met at end-October, but this legislation was subsequently passed in February 2025, while another two SBs were missed due to delays in passing amendments to of the Civil Servants and Sovereign Wealth Fund (SWF) Acts, respectively. Finally, two SBs relating to resolving undercapitalized banks and to captive power producers were missed, but subsequent policy actions are expected to accomplish the underlying objectives. Copyright Business Recorder, 2025
Business Recorder
19-05-2025
- Business
- Business Recorder
IMF sets 11 new structural benchmarks under $7bn EFF
ISLAMABAD: The International Monetary Fund (IMF) has set eleven new structural benchmarks (SBs) for the ongoing $7 billion Extended Fund Facility (EFF) programme including the parliamentary approval of a fiscal year 2026 budget in line with the Fund staff agreement to meet programme targets. The Fund in its latest report 'First review under the Extended Fund Facility (EFF) arrangement, requests for modification of performance criteria, and request for an arrangement under the Resilience and Sustainanble Facility (RSF)', noted that 11 new SBs have been set. The SBs on fiscal side include: (i) parliamentary approval of fiscal year 2026 budget in line with IMF staff agreement to meet program targets and ensure achievement of fiscal objectives (end-June 2025), (ii) implement the new Agriculture Income Tax laws through a comprehensive plan, including the establishment of an operational platform for processing returns, taxpayer identification and registration, a communication campaign, and a compliance improvement plan to protect tax revenue (end-June 2025). Pakistan meets all 7 QPCs, 5 of 8 ITs and SBs: IMF says policy efforts continue to bear fruit On governance side (i) publish governance action plan based on the recommendations of the Governance Diagnostic Assessment with the rationale to publicly identify reform measures to address critical governance vulnerabilities (end-October 2025). On social side (i) annual inflation adjustment of the unconditional cash transfer (Kafaalat) program to maintain UCT real purchasing power (end-January 2026). On monetary and financial side (i) prepare and publish a plan outlining the government's post-2027 financial sector strategy, outlining the institutional and regulatory environment from 2028 onwards to safeguard financial stability (end-June 2026). On energy sector (i) notifications of the annual electricity tariff rebasing and gas tariff adjustment to maintain energy tariffs at cost recovery levels (July 1, 2025), (ii) notification of the semi-annual gas tariff adjustment to maintain energy tariffs at cost recovery levels (February 15, 2026), (iii) adopt legislation to make captive power levy ordinance permanent to promote uptake of electricity grid usage and incentivize more efficient use of energy sources (end-May 2025), (iv) adopt legislation to remove the cap on the debt service surcharge to ensure adequate financing is available for CD conversion operation (end-June 2025). On trade, investment policy, and deregulation side (i) prepare a plan based on the assessment conducted to fully phase out all incentives in relation to Special Technology Zones and other industrial parks and zones by 2035 to improve efficiency and provide a level playing field for investment (end-December 2025), and (ii) submit to parliament all required legislation for lifting all quantitative restrictions on the commercial importation of used motor vehicles (initially only for vehicles less than five years old, subject to meeting minimum environmental and safety standards) to liberalize trade and increase vehicle affordability (end-July 2025). The report noted the authorities met all seven quantitative performance criteria (PCs) for end-December 2024: the floors on (i) net international reserves of the SBP; (ii) targeted cash transfer spending; and (iii) the number of new tax returns from new filers; and the ceilings on (iv) net domestic assets of the SBP; (v) the SBP's FX swap/forward book; (vi) the general government primary budget deficit; and (vii) government guarantees. They also met both continuous PCs on (i) zero new flow of SBP credit to the government; and (ii) zero external public payment arrears. The majority of Indicative targets (ITs) were met at end-December, including the ceilings on: (i) the aggregate provincial primary budget deficit; (ii) net accumulation of tax refund arrears; and (iii) power sector payment arrears; and the floors on (iv) revenues collected by provincial revenue authorities; and (v) the weighted average maturity of local currency debt securities. However, the ITs at end-December were missed for the floors on (i) government health and education spending; (ii) net tax revenues collected by the FBR; and (iii) net tax revenues collected from retailers under the Tajir Dost scheme. Nine SBs were met, including on approval of a National Fiscal Pact, improving safeguards for monetary policy operations and approval of amendments to bank resolution and deposit legislation. Three continuous SBs on not granting tax amnesties, seeking ex-ante parliamentary approval for any non-budgeted expenditures, and the maximum average premium between the interbank and open market rates were also met. The SB on provincial AIT legislation was not met at end-October, but this legislation was subsequently passed in February 2025, while another two SBs were missed due to delays in passing amendments to of the Civil Servants and Sovereign Wealth Fund (SWF) Acts, respectively. Finally, two SBs relating to resolving undercapitalized banks and to captive power producers were missed, but subsequent policy actions are expected to accomplish the underlying objectives. Copyright Business Recorder, 2025
Business Recorder
19-05-2025
- Business
- Business Recorder
Fund projects external financing needs at $19.316bn
ISLAMABAD: The International Monetary Fund (IMF) has projected Pakistan's gross external financing needs at $19.316 billion i.e. 4.7 percent of the GDP for the next fiscal year 2025-26. The Fund in its report 'First review under the Extended Fund Facility (EFF) arrangement, requests for modification of performance criteria, and request for an arrangement under the Resilience and Sustainanble Facility (RSF)', stated that the country's external financing need would be $19.757 billion in the fiscal year 2026-27. The Fund stated that the program is fully financed, with firm commitments for the next 12 months and good prospects for the remainder of the Fund-supported program. IMF backs Pakistan's economic recovery, says program implementation has contributed to improved financing Substantial progress has been made in realizing financing committed ahead of the EFF request, with $2.6 billion already disbursed or expected to disburse in the coming months, including from Saudi Arabia, the Islamic Development Bank, and a commercial loan backed by an ADB-partial guarantee. The report noted that firm commitments are also in place for an additional $1 billion of financing in the next 12 months. Key bilateral partners remain committed to rolling over existing short-term liabilities in the remaining program period. Pakistan's capacity to repay the Fund has improved somewhat but remains subject to significant downside risks and critically dependent on policy implementation and timely external financing. The Fund's exposure would peak at SDR 9,466 million in September 2027(466 percent of quota and about 51 percent of projected gross reserves in 2027). Pakistan's outstanding debt to the Fund as a percent of gross international reserves is above the 75 percentile of comparator countries. The three flow indicators (i.e. debt-service to the fund as a percent of government revenues, exports, and gross international reserves) are all above the 75 percentiles of the comparator group, indicating significant risks. Risks to consistent policy implementation include resistance to adoption of reforms, underperformance of tax revenue, high gross financing needs, low gross reserves, and sizeable net FX derivative position of the State Bank of Pakistan, coupled with socio-political tensions, which could erode repayment capacity and debt sustainability. Uncertainty about global geo-economic and financial conditions in major trading partners adds to these risks. Adequate and timely execution of the firm and credible financing assurances from official creditors remains essential to mitigate these risks. The Fund stated that while there is considerable uncertainty about the final impact on the economy, the tariffs and subsequent financial market reaction are expected to weigh on Pakistan's exports and GDP, with growth revised down marginally in fiscal year 2025 (as less than a quarter is left in the year) and around 0.3 percentage points in fiscal year 2026. In addition to the direct impact on Pakistan's exports to the US, Pakistan is expected to face indirect effects including via the impact of the tariffs on the economies of Pakistan's other trading partners, tighter global financial conditions, potentially lower remittances, and increased trade policy uncertainty. The net impact on the balance of payments is projected to be moderated by the recent commodity price declines and the downgrade in activity, which will reduce Pakistan's import bill. Pakistan's sovereign spreads have increased sharply since April 2, but market access to external financing in the near term is already limited vitiating any near-term impact. Nonetheless, if outflow pressures intensify it will be critical that the exchange rate is allowed to adjust. The net impact on inflation is also projected to be modest, with some downward pressure expected from lower commodity prices and weaker growth. 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. The Fund stated that 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. Copyright Business Recorder, 2025
