High Downside Risks
The International Monetary Fund (IMF) has sounded a cautionary note on Pakistan’s economic outlook, emphasizing that downside risks remain exceptionally high.
In its staff report released ahead of the government’s upcoming discussions with the IMF for a longer-term program, the IMF highlighted several challenges that could potentially hinder Pakistan’s economic recovery.
The report underscores that while the new government has expressed its commitment to continuing policies under standby arrangements (SBAs), significant political uncertainty persists.
This uncertainty, coupled with the high cost of living, could impede policy implementation.
The IMF warns that any policy slippages, coupled with reduced external financing, could jeopardize the country’s path to debt sustainability and put pressure on the exchange rate.
Moreover, the IMF identifies external factors such as higher commodity prices, disruptions in shipping, and tighter global financial conditions as additional threats to Pakistan’s external stability.
These challenges compound the already precarious financial situation faced by the cash-strapped nation.
The IMF emphasizes the importance of timely disbursements of external financing post-programme. Pakistan recently completed a short-term $3 billion IMF programme, which helped avert sovereign default.
However, Prime Minister Shehbaz Sharif has advocated for a fresh, longer-term programme to address the country’s ongoing economic challenges.
Despite stabilizing the economy after the completion of the last IMF programme, Pakistan continues to grapple with a high fiscal deficit.
While import control measures have helped curb the external account deficit, they have also contributed to stagnant economic growth, projected to be around 2% this year compared to negative growth last year.
Looking ahead, Pakistan is expected to seek at least $6 billion in additional financing from the IMF under the Resilience and Sustainability Trust to address its economic vulnerabilities and support long-term growth prospects.
I am a dynamic professional, specializing in Peace and Conflict Studies, Conflict Management and Resolution, and International Relations. My expertise is particularly focused on South Asian Conflicts and the intricacies of the Indian Ocean and Asia Pacific Politics. With my skills as a Content Writer, I serve as a bridge between academia and the public, translating complex global issues into accessible narratives. My passion for fostering understanding and cooperation on the national and international stage drives me to make meaningful contributions to peace and global discourse.
