IMF projects Pakistan's CAD at 1%, reserves to reach $22.5bn by FY28

October 11, 2024 (MLN): Amidst a gradual recovery in domestic demand alongside increased imports and exports, the International Monetary Fund (IMF) has projected a modest Current Account Deficit (CAD) of around 1% of GDP for Pakistan between FY25 and FY28, according to the latest Staff Report published by IMF. 

This improvement is expected to result from policies promoting a more dynamic private sector.

Additionally, gross reserves are forecast to rise significantly, reaching $22.5 billion by the end of FY28, up from $9.4bn in June 2024, covering 3.1 months of imports.

The IMF also outlined its expectations for external financing, projecting multilateral disbursements of $14bn over FY25–28, including $7.1bn from the World Bank and $5.6bn from the Asian Development Bank.

Key bilateral creditors are expected to maintain their financial commitments, while modest short-term borrowing from commercial banks is anticipated for FY25-FY26.

A return to bond markets is assumed by mid-FY27, reflecting restored policy credibility.

Supported by stronger-than-expected fiscal consolidation efforts, the IMF projects that Pakistan's debt-to-GDP ratio will decrease to around 60% by FY29,

However, near-term risks remain high due to large gross financing needs and challenges in securing external financing.

The IMF cautioned that real interest rates could negatively impact debt dynamics in the coming years, but overall, Pakistan’s public debt is expected to remain sustainable in the medium term.

The authorities agreed that the recovery would proceed only gradually but noted that a slightly narrower current account deficit would be consistent with the outlook.

While acknowledging that risks remain significant, the authorities pointed to the continuity in ownership between the government at the inception of the 2023 SBA and the government formed in March with a full five-year term ahead.

They noted upside risks arising from faster-than-anticipated access to commercial borrowing and investment inflows

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