Over the next few years, Pakistan faces the prospect of stagnant economic growth, a predicament outlined by international lenders who foresee subdued expansion ranging from 1.8% to 3.5%. Factors contributing to this state include dwindling investment, persistent fiscal and external imbalances, and a significant state presence in the economy.
The IMF’s flagship World Economic Outlook 2024, released ahead of the World Bank Group’s spring meetings, projects Pakistan’s economy to grow by 2% this year and 3.5% in the following year. These estimates are contingent upon sustained fiscal consolidation and potential IMF support through a new bailout. Finance Minister Muhammad Aurangzeb is currently in Washington, advocating for a larger, three-year IMF program worth $6 billion to $8 billion to bolster planned economic reforms.
Aurangzeb has articulated the necessity for a comprehensive program to execute structural reform initiatives, citing improved market sentiment and economic stabilization achieved under the Stand-By Arrangement. This proposed program aims to break the cycle of financial struggles and bailouts that Pakistan has experienced in its previous engagements with the IMF.
However, history reveals Pakistan’s challenges in fulfilling longer-term IMF programs due to deviations from policy goals driven by political considerations. Aurangzeb emphasizes the urgency of structural reforms to avoid repeated reliance on IMF programs, acknowledging the country’s familiarity with necessary measures for economic stability. The critical task lies in effective implementation.
Diverging from past approaches, Aurangzeb intends to incorporate discussions on the program’s growth aspects with the IMF. Nevertheless, the specifics of how economic growth will be achieved alongside stringent stabilization reforms remain unclear.
With the economy mired in crisis, the upcoming budget will serve as a litmus test of the government’s commitment to reform and Aurangzeb’s ability to balance stabilization efforts with fostering accelerated growth.
