'$43b inflows to offset flood fallout'

Govt tells IMF floods will not hurt stability, though exports may dip by $1b

ISLAMABAD:

Pakistan has informed the International Monetary Fund (IMF) that its external sector will benefit from the floods due to an expected upsurge in remittances that may now hit $43 billion, enough to offset any dip in exports and keep the current account deficit under check.

The Pakistani authorities shared their macroeconomic assessment of the post-flood scenario with the IMF, which did not depict any element of concern, according to government sources. The assessment suggests a stable inflation rate around 7% and the economy still growing close to 4%.

The conservative official assessment was that workers' remittances may reach nearly $41 billion compared to the pre-flood target of $39.4 billion, said the government sources. The higher figure is linked to a better economic outlook in countries where Pakistanis live and are likely to send more money to help their families.

Almost half of Pakistanis living abroad are from flood-hit districts in Punjab, and authorities believe there is a chance they could send an additional $2 billion this year.

Other factors contributing to higher remittances are exchange rate stability, the seasonal factor of Eids, lower global inflation, and government incentives to use formal channels.

Sources have said that so far, remittances have grown 7% - which, because of floods, can go up to at least 12%, enough to increase remittances to $43 billion. Authorities noted that after the 2010 floods, remittances rose exceptionally for at least one year. It is not yet clear whether the IMF has accepted Pakistan's position. An affirmative response could lower external financing requirements by the same amount, which otherwise remain high.

Due to stronger remittance flows, the government now projects a current account deficit of less than $1 billion against the original $2.1 billion target and the IMF's estimate of $3.6 billion, said sources. Some believe the current account may even post a surplus if the $43 billion in remittances materialise.

Earlier, there were concerns that the floods, which have impacted 3.3 million acres of land in Punjab, would create external pressures due to higher imports and lower rice exports.

The government's assessment shared with the IMF was that exports may dip by $1 billion to $34.2 billion this fiscal year because of flood damage to agriculture and industry.

Imports are still projected on the higher side at $65 billion due to rising cotton requirements and the effect of reduced regulatory duties.

A day earlier, IMF Mission Chief Iva Petrova also said the floods would not significantly hurt economic growth or FBR's tax collection target.

The finance ministry's assessment is that economic growth may still remain 3.7%, compared to the 4.2% target, reflecting losses in agriculture and spillover effects on industry and services. The Planning Commission's estimate, however, was slightly higher at around 4%.

The recent floods are a significant downside risk to Pakistan's macroeconomic stability. But the finance ministry said the economy was in a much stronger position to absorb the impact compared to the 2022 floods.

With low inflation, moderate domestic demand, and stable global commodity prices, the excessive inflation and external pressures seen after past floods are expected to remain contained.

According to the official assessment, although crop outcomes are below targets, some still exceed last year's levels. For rice, the sown area reached 3.2 million hectares against a 3.1 million target. Sugarcane was sown on 1.2 million hectares, slightly above target, while cotton sowing remained below target.

Rice production is still estimated at 8.8 million tonnes, about 400,000 tonnes short of target but not enough to significantly affect supplies. Sugarcane production is projected at 81 million tonnes, still better than target.

Cotton output is expected at 7.2 million bales, below target but higher than last year. Maize production is forecast at 9.2 million tonnes, one million more than last year. Wheat production is anticipated to meet the 29.6 million-tonne target, though actual results will depend on sowing conditions. The IMF was told the target for industrial growth was set at 4.3% and largely remains intact.

The government is also not expecting inflation to rise despite floods. It informed the IMF that inflation may remain around 7%, supported by exchange rate stability in the medium term and the expected increase in remittances.

The Ministry of Finance also released its monthly economic outlook on Tuesday, which said Pakistan's economy maintained its trajectory of stabilisation and growth during the first two months of FY2026.

The stability was due to moderating inflation, strengthening large-scale manufacturing, and controlled fiscal imbalances despite floods, said the ministry. The LSM sector posted growth led by textiles, automobiles, and cement, while CPI inflation eased in August 2025. The finance ministry said flood-related disruptions may pressure food supply chains, raising prices in the short term. Inflation is therefore expected to rise temporarily but remain contained within the 3.5% to 4.5% range in September 2025.