The IMF report

EDITORIAL: International Monetary Fund (IMF) report titled “Regional Economic Outlook, Middle East and South Asia, Resilience amid Uncertainty: will it last,” warned Pakistan that severe flooding will have adverse effects on growth, inflation and current account than has been currently estimated although the actual impact remains highly uncertain.

Needless to add, this is stating the obvious and there is evidence that the Fund has already given the government a reprieve in terms of meeting one harsh upfront condition agreed at the time of approval of the ongoing 7 billion US dollar Extended Fund Facility programme (approved by the Board of Directors on 27 September 2024: to abandon the long-standing government policy to intervene in price setting and procurement of agricultural commodities that, it was argued, accounted for the sector being “unresponsive to changing consumer preferences, exacerbated price volatility and hoarding… . Going forward these interventions should be discontinued.

Any purchases of agricultural commodities by SOEs or provincial food departments should be done solely for purposes of a narrowly defined national food security, and not as quasi-fiscal social policies, including [the need] to boost farmers’ income or provide untargeted subsidies for staples.”

However, it is not known as to how much latitude has been given to the provincial food departments in this regard, and one would not be remiss in assuming that a final decision would remain pending till the damage assessment is completed.

Economists reckon that the Fund projected growth rate of 3.6 percent, 0.6 percent lower than the budgeted projection, is too optimistic; and additionally, it would have implications on tax collections to the tune of between 200 to 300 billion rupees with the Federal Board of Revenue already acknowledging a shortfall of 198 billion rupees during the first quarter of the current year.

Fiscal balance for the current year has been projected at negative 4.1 percent of GDP, which is all the more baffling in light of the floods, given that the budget for 2025-26 (prior to the onset of floods) estimated a much higher fiscal deficit of negative 5.9 percent against 5.3 percent in 2024-25 (though the budgeted revised deficit was negative 7.4 percent against the budgeted negative 6.5 percent).

Be that as it may, the 10 October staff-level agreement documents uploaded on the Fund website project the fiscal deficit at negative 7.1 percent (close to what was budgeted) and forecast negative 4.7 percent for the current year. One would be forced to conclude that the Fund’s projections are optimistic falling within the range of a discrepancy of between 1 to 1.5 percentage points but has supported this position by highlighting a high degree of uncertainty

Projection for export growth is realistic with USD 1.4 billion increase envisaged (from USD 40.7 billion to USD 42.1 billion) based on a USD 4 billion growth in imports, largely comprising of raw materials and semi-finished products (from USD 70.1 billion to USD 74 billion).

These projections are more complicated as international trade remains compromised with conflicts around the world (the Middle East and Russia-Ukraine) as well as the prevailing unfavourable domestic investment environment premised on the fact that the country, as per the IMF conditions, continues with severely contractionary monetary and fiscal policies and in order to achieve full cost recovery offers energy and transport rates much higher than regional competitors.

To conclude, until the extent of the damage caused by the summer floods is assessed the projections remain vulnerable to a statistical discrepancy of between 1 to 1.5 percentage points, which is significant and, as argued in the report, may well compromise the reported gains through pre-flood implementation of the IMF conditions.

Copyright Business Recorder, 2025.