IMF forecasts Pakistan’s inflation rate to fall to 10.6% by 2025

The International Monetary Fund (IMF) projects that Pakistan’s inflation rate, which dropped from 29% to 12.6% this year, will further decline to 10.6% by 2025, according to IMF’s Director for the Middle East and Central Asia, Jihad Azour.

In a recent statement on Pakistan's economic outlook, Azour remarked that Pakistan's economy is expected to grow at a rate of 3.2% in the 2024-25 fiscal year, an improvement that signals economic recovery.

Azour emphasised that Pakistan's reform package aims to achieve several key objectives, including fiscal stability, increased revenue, and reduced deficits. He highlighted that improvements in tax collection and addressing systemic issues could boost Pakistan’s revenue.

He also noted that reforms within state-owned enterprises remain a priority, which could open more opportunities for the private sector, attract foreign investment, and strengthen Pakistan’s export potential.

The IMF official further explained that creating a favourable environment for additional investment in Pakistan is essential. Current fiscal policies, he said, are helping reduce inflationary pressures and facilitate capital flows, easing the burden on Pakistan's current account.

Azour expressed optimism that these measures would stabilise the economy, mitigate financial risks, and enhance the energy sector.

Moroever, Pakistan is targeting around $1 billion in a formal request for funding from the IMF facility that helps low and middle-income countries mitigate climate risk, Finance Minister Muhammad Aurang told Reuters.

"We have formally requested to be considered for this facility," the minister said in an interview on the sidelines of the IMF/World Bank autumn meetings in Washington.

The International Monetary Fund had already agreed to a $7 billion bailout for Pakistan but has further funding available via its Resilience and Sustainability Trust (RST). The RST, created in 2022, provides long-term concessional cash for climate-related spending, such as adaptation and transitioning to cleaner energy.

"We think we are a very good candidate to be considered for a facility like this," Aurangzeb said, adding that they aim to conclude the request in the coming months.

Aurangzeb said they were talking to "a few other institutions" in addition to the AIIB for a credit enhancement. Credit enhancements provide some level of guarantee for bonds, which can boost their rating, attract more investors, and thus cut the government's borrowing costs.