Low growth, high inflation, natural disasters, high external debts: many challenges rolling the economy of Pakistan

With GDP growing less than 3 % since 2023, standard inflation and natural disasters, the Pakistani economy was reeling from shocks on several fronts, ultimately, searching for another sponsorship of the International Monetary Fund. External debt obligations, the highlight of analysts will not be funded without the International Monetary Fund package with its total external debt at $ 131 billion by December 2024.

After contracting 0.2 % in their financial year in July 2022 to June 2023, the Pakistani economy was on a recovery path with GDP growth by 2.5 % in the 24th fiscal year and estimated at 2.7 % in the fiscal year 25 according to the World Bank. Its economic growth was seen expanding to 3.1 % in the 26th fiscal year, according to the World Bank’s estimate. The inflation, which rose to the height of nearly 40 % in mid -2023 in Pakistan, fell to 0.7 % by March 2025 and 0.3 % by April this year.

“In Pakistan, the economy is still recovering from a group of natural disasters, external pressures, and inflation. Inflation has slowed more quickly than expected, providing room for more monetary mitigation,” indicated by the World Bank Development report issued in April 2025.

“The agreement was reached in September 2024 on the Policy -supported policy program, which helped stabilize the exchange rate and reduce the risk of backwardness of debt, as shown in the rating promotions of many credit rating agencies and narrowing the spread of borrowing,” the report highlighted that the decisive role in the International Monetary Fund asserting Pakistan.

The International Monetary Fund rescue plan

On May 9, the Executive Council for approval of the International Monetary Fund completed the first review of the Pakistani Economic Reform Program, which is supported by the arrangement of the extended fund facility (EFF), which allowed an immediate disposal of about one billion dollars to the nation. However, the total payments of Pakistan from IMD under the ranking are now $ 2.1 billion. In addition, the Executive Council of the International Monetary Authority approved the authorities’ request to arrange under the Flexibility and Sustainability Facility (RSF), with about $ 1.4 billion (SDR 1 billion).

At the meeting, India has raised concerns about the effectiveness of the International Monetary Fund programs in the event that Pakistan, given its bad record and refrained from voting.

The 37 -month EFF facility, which was approved by the International Monetary Fund in September 2024, began to show some results, according to the press statement of the International Monetary Fund, which indicated that the Pakistani financial performance was strong with the basic surplus of 2 % of GDP in the first half of the FY25. The progress made in inflation and fixed local and external conditions allowed the State Bank in Pakistan to reduce the policy average of a total amount of 1100 basis points since June 2025, adding that the total reserves are 10.3 billion dollars at the end of April 2025 and continue the authority at the end of August 2025 in August 2024. Condition.

Analysts also expected a request from consumers and work confidence.

The risks continue:

But the ongoing conflict with India will definitely prove that it represents an obstacle to the Pakistani economy with the investor and commercial confidence that is scheduled to extend and other procedures for government financing. Many other risks have continued and Pakistan will have a long way to achieve a complete transformation of its economy.

Analysts note that governance continues with internal political stress pose a major danger to Pakistan as well as the impact of climate change that led to the outbreak of floods in recent years while access to freshwater is a challenge to the country.

The most disturbing thing is that external debt obligations are still high without adequate foreign drainage reserves.

MOODYS rankings in its credit opinion in Pakistan in February this year indicated that the risk of external weakness in Pakistan is still high. “Despite the increase, foreign currency reserves remain much lower than what is required to meet external debt obligations during the next few years.” The payment of the main debts of the government is about 22-23 billion dollars every year on the money 2025-2027.

“The country still depends on timely financing from official partners to fully meet the external debt obligations, which emphasizes the importance of steady progress through its EEF program to constantly cancel the financing lock,” he said.

This is not all. The poverty rate is 21.9 %, which means that nearly a quarter of its population is unable to withstand the costs of the basic elements. The rate of GDP per capita was 1566 dollars in 2023-24. The unemployment rate was 8.3 % in the 24th fiscal year and was 8 % expected in the fiscal year 25, according to the presence of the International Monetary Fund. According to the United Nations Human Development Index, Pakistan ranked 164th in a list of 193 countries in 2023.