Pakistan economy to grow 2.7% in FY25, economic survey shows

Pakistan's economic survey projects a 2.7% GDP expansion for the fiscal year ending June 2025, slightly above the previous year's 2.5% growth and the IMF's 2.6% forecast, but below the government's initial 3.6% target. The central bank has cut its policy rate by over 1,000 basis points to 11% to encourage growth, while the current account showed a $1.9 billion surplus from July to April, a significant improvement from the previous year's deficit. While the Finance Minister highlights macroeconomic stabilization and projects 5.7% medium-term GDP growth, increasing revenue to reduce the fiscal deficit remains a key challenge under the IMF program.

Analysis

Pakistan's economy is projected to grow by 2.7% in the fiscal year ending June 2025, a slight increase from the 2.5% growth in the previous year, according to the government's economic survey. This revised forecast is down from an initial target of 3.6% but aligns closely with the IMF's 2.6% projection for FY25. Concurrently, the government aims for a more ambitious 4.2% GDP growth in the subsequent year, navigating challenges such as stimulating investment and managing fiscal targets. Monetary policy has seen significant easing, with the central bank cutting its key rate by over 1,000 basis points to 11% during the current fiscal year to spur economic activity. A notable improvement is the current account surplus of $1.9 billion for July-April, a stark contrast to the $200 million deficit in the same period last year. The Finance Minister highlighted macroeconomic stabilization and anticipates 5.7% medium-term GDP growth, contingent on investment-friendly reforms. However, the economy remains under an IMF program, with increasing revenue to address the fiscal deficit—recorded at 2.6% of GDP in the first three quarters—being a critical challenge. Inflation for the year was reported at 4.6%. The upcoming federal budget will be crucial in detailing measures to achieve these targets amidst ongoing reforms.

Key Decisions for Investors

• Investors should acknowledge the positive signals from Pakistan's current account improvement and aggressive monetary easing, which could support growth assets, but remain cautious given the revised, lower GDP growth forecast for FY25 and the challenges of fiscal consolidation under the IMF program.
• Monitor the upcoming federal budget closely for specific measures on revenue generation and fiscal discipline, as these will be key indicators of the government's commitment to the IMF reform path and overall economic stability.
• Consider the potential for increased volatility as the government balances growth stimulation with IMF-mandated reforms; the divergence between government growth targets and IMF projections warrants careful risk assessment.