April 19, 2024 (MLN): Although easing oil prices are reducing import costs, the uptick in domestic demand, and hence imports, this year is expected to result in a deterioration of current account balance in Pakistan, according to the International Monetary Fund.
Notably, the conflict in Gaza and Israel, further exacerbated by Iran-Israel, has worsened an already challenging environment, and disruptions to shipping through the Red Sea have added to uncertainty.
The duration and impact of the conflict remain highly uncertain, the Fund said.
On the positive side, monetary tightening cycles appear to have ended in most countries as inflation is approaching its historical average in many MENA economies, with inflation close to or even below average in one-third of economies.
However, Pakistan’s external buffers have deteriorated, mostly reflecting ongoing debt service, including Eurobond repayments, the IMF said.
Sovereign spreads for global emerging markets have narrowed over the past year and are close to early 2023 levels for most MENA countries. However, they remain at distressed levels (more than 1,000 basis points) for Pakistan, Lebanon, and Tunisia.
The continued reliance on domestic financing risks further exacerbate the sovereign-bank nexus, given the already-high exposure of banks to sovereign debt in some EM&MIs (notably Pakistan and Egypt).
The growth outlook for the MENA region and Pakistan is characterized by an uneven recovery against a backdrop of armed conflicts, hydrocarbon dependence, and persistent structural challenges.
According to the IMF’s calculations, Pakistan's total imports are projected to be $66.7 billion in FY24 and $71.4bn in FY25.
On the exports front, the global lender estimates $39bn in FY24 and $41bn for FY25.
