External views and domestic data portray optimism in Pakistan’s economy as the government finalises the annual budget 2024–2025 for tabling it to the National Assembly within a fortnight now.
Ahead of the unveiling of Pakistan’s annual fiscal policy, Budget 2025–26, fresh economic indicators and global assessments signal a cautiously optimistic outlook for the country’s economy.
Key figures from the International Monetary Fund (IMF) staff-level report, the UN World Economic Situation and Prospects (WESP–2025), and the recent economic outlook released by the State Bank of Pakistan (SBP) highlight resilience in Pakistan’s economy and potential to move ahead towards what Finance Minister Muhammad Aurangzeb calls inclusive growth.
Growth on the upswing
According to the latest figures, Pakistan’s economy expanded by approximately 2.4 per cent in FY 2023–24, marking a return to positive growth following a difficult prior year. The SBP projects an encouraging growth range of 2.5 per cent to 3.5 per cent for FY 2024–25, reflecting resilience amid regional and global uncertainties.
The IMF Resident Representative for Pakistan, Philip Jones, stated, “Pakistan has made important strides in stabilising the economy. Continued reforms and fiscal discipline are crucial to sustain growth and ensure macroeconomic stability.”
This expected rebound aligns well with the IMF staff-level report that highlights stabilisation in macroeconomic variables and improved fiscal discipline as key contributors to growth prospects.
Inflation trends and price stability
After a challenging period of high inflation averaging 24.5 per cent in FY23–24, forecasts suggest a significant moderation to around 5.1 per cent in FY24–25, supported by tighter monetary policy and supply-side reforms.
The UN’s World Economic Situation and Prospects (WESP) 2023 report corroborates this view, noting that targeted government interventions, including an inflation adjustment mechanism for social safety nets, are helping to maintain purchasing power among vulnerable populations. The IMF report, however, points out the risk of easing inflation reversing back to the double digits due to the economic growth itself and relaxations in the monetary policy. That is why, perhaps, the IMF calls for linking the unconditional cash transfers to the actual inflation to maintain the purchasing power of the low-income strata of society. Economist Dr Ayesha Siddiqui commented, “The inflation-linked cash transfer mechanism is a critical tool for protecting vulnerable segments of society against rising prices, promoting social equity amid economic reforms.”
Fiscal consolidation and debt management
Pakistan’s fiscal deficit is projected to narrow further to between 5.5 per cent and 6.5 per cent of GDP in FY25, down from 6.8 per cent in FY24, indicating progress toward fiscal consolidation. Public debt remains elevated but stable, with efforts underway to manage external obligations prudently.
Finance Minister Muhammad Aurangzeb recently emphasised in a press briefing by saying, “Our focus remains on prudent fiscal management, improving revenue mobilisation, and safeguarding social spending to support inclusive growth.”
The IMF report commends these efforts, highlighting improved revenue collection and subsidy rationalisation as positive fiscal reforms. However, the looming IMF programme conditionality remains a hanging sword over the economic landscape. Observers warn that stringent reforms required by the Fund — including subsidy cuts and tax reforms — will test the government’s balancing act between fiscal discipline and social stability. The government officials were confident that the IMF would understand the need for a gradual reduction in tariffs to increase exports and certain tax incentives to rejuvenate some ailing sectors, such as real estate.
Strengthening the external sector
The current account deficit has narrowed dramatically to nearly balanced levels, thanks largely to robust remittance inflows, which surged to over $30 billion in FY23-24 and are expected to increase further in FY24-25. Exports and foreign direct investment are also on an upward trajectory, contributing to enhanced foreign exchange reserves and external stability.
Trade expert Zafar Mahmood, director of the Pakistan Business Council, notes, “Sustained remittance inflows and export growth are vital pillars for Pakistan’s external sector stability, especially in an uncertain global market.”
Social protection and poverty reduction
Reflecting the UN’s emphasis on inclusive growth, Pakistan has expanded its social safety nets, such as the Benazir Income Support Programme, with inflation-indexed cash transfers protecting millions from rising prices.
Although poverty remains a challenge in Pakistan, these measures signal the government’s commitment to safeguarding vulnerable communities during economic adjustment.
Looking ahead: Budget 2025–26 expectations
As policymakers prepare to present the upcoming budget to the Parliament, analysts expect a continued focus on fostering growth while maintaining macroeconomic stability.
Priorities are likely to include boosting investment, enhancing export competitiveness, and sustaining social protection programmes—all aimed at accelerating Pakistan’s recovery trajectory.
In sum, the convergence of domestic economic data, IMF assessments, and UN forecasts paints a promising picture for Pakistan’s economy on the cusp of Budget 2025–26, one of cautious optimism, resilience, and measured progress.
