ISLAMABAD: Growth for Pakistan is expected to remain broadly unchanged in fiscal year 2025, reflecting a 0.6 percentage point downward revision from October because of weaker activity during the first half of fiscal year 2025 and heightened trade uncertainty more than offsetting the positive impact of recent and further expected monetary easing over the second half of this year, said the International Monetary Fund (IMF).
The Fund in its latest report “Regional Development and Economic Outlook”, GDP growth rate is projected at 2.6 percent for fiscal year 2025 and 3.6 percent for 2026 against 2.5 percent in fiscal year 2024.
The report noted that inflation is projected to continue easing in 2025 and beyond, in line with global trends. This decline is attributed to favorable base effects (Egypt, Pakistan), reduced commodity and food price pressures (Morocco), and the lagged impact of tighter monetary policy (Egypt).
IMF Executive Board to discuss Pakistan programme on May 9
Recent growth trends indicate a divergence between oil-exporting and oil-importing economies in the Middle East and North Africa (MENA) region and Pakistan.
In 2024, most oil exporters successfully navigated a complex and uncertain economic landscape, aided by ongoing diversification efforts, despite reduced oil activity because of extended OPEC+ voluntary production cuts. By contrast, the ongoing conflicts in the MENA region and their spillover effects have weighed on growth in several oil-importing economies.
Looking ahead, economic activity in the MENA region and Pakistan is still projected to strengthen, but at a considerably slower pace than anticipated in October, reflecting spillovers from escalating global trade tensions and heightened uncertainty, which are adding to a more gradual resumption of oil production, a slower-than-anticipated resolution of conflicts in the region, and slower-than-expected progress of structural reforms, especially in Egypt.
Furthermore, renewed inflationary pressures could result in a higher-for longer interest rate environment amid widening sovereign spreads in the region, particularly affecting several MENA emerging market and middle-income countries and Pakistan due to their elevated debt levels.
Fiscal consolidation is expected to continue at a gradual pace, reflecting ongoing efforts to reduce public debt. However, for many MENA EM&MIs and Pakistan, borrowing costs are expected to remain elevated, with effective interest rates projected to remain above pre-pandemic averages.
Although sovereign spreads on external debt have tightened across EM&MIs—albeit widening substantially for highly-indebted economies amid rising global trade policy uncertainty—maturing debt would likely need to be refinanced at higher yields (Egypt, Jordan, Pakistan, Tunisia).
Although sovereign spreads on external debt have tightened across EM&MIs—albeit widening substantially for highly-indebted economies amid rising global trade policy uncertainty—maturing debt would likely need to be refinanced at higher yields (Egypt, Jordan, Pakistan, Tunisia)
With interest rates expected to remain elevated for a longer period, countries facing high debt levels and financing needs — especially Egypt, Jordan, Pakistan, and Tunisia — will need to accelerate fiscal consolidation. This can be achieved by containing spending on subsidies and mobilizing additional revenue, including through phasing out tax exemptions and stronger tax administration. Policymakers should mitigate risks such as contingent liabilities arising from large state-owned enterprises (Egypt, Pakistan) and public private partnerships (Morocco).
fiscal positions continued to improve in oil importers not affected by ongoing conflicts (Mauritania, Morocco, Pakistan, Somalia, Tunisia; Figure 1.6).
The primary balance in these economies increased by 1.4 percent of GDP on average in 2024 compared with 2023, supported by successful efforts to boost tax revenues through tax policy and administration reforms, and efforts to rationalize spending, including reductions to subsidies (Morocco, Pakistan). In Pakistan, higher interest expenses—which rose by about 0.9 percent of GDP compared with the previous year — muted the consolidation effort.
In the Middle East and North Africa (MENA) and Caucasus and Central Asia (CCA) regions, the announced April 2 tariffs were set high—between 20 and 40 percent — for countries such as Algeria, Iraq, Jordan, Kazakhstan, Libya, Pakistan, Syria, and Tunisia, while others were set at the baseline rate of 10 percent.
For most economies in the MENA and CCA regions the impact is less than 1 percent, though pending further discussions and agreements, the effects on Pakistan and Jordan could be larger given their larger shares of exports to the United States in their total exports.
Tunisia benefited from sustained tourism inflows and remittances, Pakistan recorded stronger agricultural production and an economic recovery following the floods in 2023, and Mauritania’s non-extractive sectors performed robustly.
Copyright Business Recorder, 2025
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