Maria Mansab
Pakistan’s economy is undergoing a remarkable resurgence, with several vital indicators reflecting a shift toward stability and sustained growth. Major international institutions have reinforced global confidence in Pakistan’s economic trajectory, further bolstering the country’s financial outlook.
One of the most significant developments comes from the International Monetary Fund (IMF), which recently reached a staff-level agreement with Pakistan under its Extended Fund Facility (EFF) of $7 billion. An upcoming IMF board meeting, scheduled for September 25, 2024, is anticipated to formalize the agreement, marking a clear signal of the Fund’s satisfaction with Pakistan’s policy framework. Julie Kozack, IMF’s spokesperson, lauded Pakistan’s consistent policymaking, attributing the country’s return to economic growth, significant disinflation, and a sharp rise in international reserves to these efforts.
The IMF Global Economic Outlook report projects Pakistan’s economic growth to be 3.5% for the current fiscal year, underscoring the country’s positive trajectory. It also signals that Pakistan is on a sustainable path of economic development, supported by sound fiscal and monetary policies. The projected growth rate is a positive indicator for investors and international stakeholders, suggesting that the country is progressing toward long-term economic stability.
On the external front, the Pakistani rupee (PKR) stability is another positive sign for the economy. The PKR appreciated against the US dollar for the third consecutive day, closing at 278.4 in the interbank market. This currency stability offers much-needed relief to businesses and consumers alike, as a stable exchange rate helps to control import costs and ease inflationary pressures. Pakistan’s total liquid foreign reserves, standing at $14.74 billion as of August, have surpassed the IMF’s earlier projection of $13.6 billion by the end of 2024-25. This remarkable achievement highlights the country’s improved financial standing and ability to meet external obligations effectively.
Additionally, the IMF indicated in its Staff Report that Pakistan’s economy will survive and perform relatively well in 2024-25, even without additional IMF support. Besides international recognition, Pakistan has received credit rating upgrades from two major global agencies. Fitch Ratings raised the country’s rating from ‘CCC’ to ‘CCC+,’ while Moody’s upgraded it from ‘Caa3’ to ‘Caa2.’ These upgrades are crucial as they reflect increased global confidence in Pakistan’s ability to manage its financial obligations and improve its economic outlook.
The ratings boost suggests growing trust in Pakistan’s economic policies and long-term prospects. On the domestic front, Pakistan’s economic fundamentals are showing substantial improvement. Inflation has significantly declined. The Consumer Price Index (CPI) in August fell to 9.6%, a 34-month low, considerably lower than the 28.2% recorded a year ago and the 11.1% seen in July. This substantial reduction highlights the government’s success in managing inflationary pressures.
In tandem, the State Bank of Pakistan has taken bold steps to support the economic recovery by reducing the key policy rate by 200 basis points, bringing it down to 17.5%. This decision aims to stimulate growth by lowering borrowing costs, encouraging investment, and boosting consumption. The central bank’s move reflects its confidence in the economic trajectory, balancing the dual goals of inflation control and growth stimulation.
Another area of progress is the country’s current account deficit (CAD), which has been successfully controlled. In July 2024, Pakistan recorded a CAD of just $162 million, remaining well within the government’s targeted limits. This achievement results from policies aimed at curbing imports while boosting exports, helping to maintain fiscal discipline, and ensuring a sustainable balance of payments.
The government has also alleviated pressure on consumers by lowering fuel prices. For the fourth consecutive fortnight, petrol and high-speed diesel prices are expected to see reductions, with a Rs 12 per liter decrease for petrol and diesel anticipated from September 15, 2024. Kerosene oil prices are also likely to drop by Rs 8 per liter. These reductions follow a previous slight decrease, which reduced petrol prices by Rs 1.86 per liter (bringing the new price to Rs 259.10), and high-speed diesel down by Rs 3.32 per liter (now at Rs 262.75). These measures have contributed to easing inflationary pressures and offering relief to the public.
Additionally, workers’ remittances have surged, reaching $2.9 billion in August 2024, a 40.5% year-on-year increase. The remittances provide a vital boost to Pakistan’s foreign reserves while supporting domestic consumption. Precisely, $713.1 million flowed in from Saudi Arabia, $538.4 million from the UAE, $474.8 million from the UK, and $322.4 million from the US. This sharp increase in remittances strengthens the country’s reserves and contributes to its overall economic resilience.
Pakistan’s economy is on a promising path with the IMF’s positive outlook, strong endorsements from international credit agencies, a stable currency, controlled inflation, rising remittances, and a projected 3.5% economic growth for the fiscal year. The government’s concerted efforts to stabilize and stimulate the economy yield tangible results, paving the way for sustained growth and increasing global confidence in the country’s future.
The columnist is an MPhil scholar from Quaid-e-Azam University and a freelance writer. She can be reached at [email protected]
