LAHORE: As Pakistan approaches the first anniversary of its three-year, $7 billion Extended Fund Facility with the International Monetary Fund (IMF), the country’s economic landscape presents a mixed picture. While the immediate objective of economic stabilization seems to have been achieved, significant challenges remain in implementing structural reforms necessary for sustainable growth.
The IMF program, initiated in July 2023, aims to stabilize Pakistan’s economy and encourage reforms. However, despite avoiding default, the country still grapples with high poverty and unemployment rates. The outlook for growth remains uncertain, with the emerging middle class facing potential decline.
With an impending IMF review, Pakistan’s economic team, led by the finance minister, is urged to address these challenges rather than rest on stabilization achievements. Key priorities include convincing the IMF to accelerate the shift from stabilization to growth, given the inadequacy of the targeted 3.5% growth rate for FY2025-26 in addressing living standards and job creation.
A reassessment of monetary policy is deemed urgent, advocating for lower interest rates due to low inflation. The composition of the Public Sector Development Programme should shift towards labor-intensive expenditures, particularly at local levels, to stimulate growth.
The rural economy’s downturn, affecting 10 million farm households, demands attention. The removal of government support prices and rising input costs have exacerbated poverty in rural areas. An in-depth assessment of agricultural reforms, with provincial involvement, is suggested to address these issues.
Additionally, the impact of tariff reforms on industrial and manufactured exports growth needs evaluation, considering constraints like import surges. Monitoring the pace of economic reforms is crucial, particularly in areas like civil service restructuring, to ensure continuity and confidence.
Living under IMF supervision is a reality Pakistan must accept in the coming years. The economic team faces the dual task of delivering on IMF commitments while advocating for necessary adjustments to mitigate adverse impacts on the poor. The hope is that the IMF will heed these concerns and support course corrections in the ongoing program.