The International Monetary Fund (IMF) has approved a fresh USD 1.2 billion disbursement to Pakistan under its ongoing support programme, including both its core lending facility and the climate-resilience tranche. With this release, total assistance provided so far amounts to roughly USD 3.3 billion, offering short-term relief for an economy that only recently faced default risks.

Updated IMF projections show a modest improvement in macroeconomic indicators. The country’s GDP growth is expected to rise from 2.6% in FY 2025 to around 3.2% in FY 2026. Inflation, which averaged above 20% in FY 2024, has eased sharply and is projected to moderate to 4.5% in FY 2025, before inching up to about 6.3% the following year.

Fiscal consolidation measures appear to be gaining traction. The government is moving from a large deficit toward a narrower fiscal position while achieving a primary surplus — an indicator that revenues are now covering non-interest expenditures. External buffers, including foreign exchange reserves, have also strengthened, lowering immediate default concerns that dominated much of 2023–2024. The IMF noted that these improvements together suggest that Pakistan has entered a phase of short-term macroeconomic stability.

However, underlying structural vulnerabilities remain pronounced. Public debt continues to be high, with overall debt-to-GDP estimated around 72–73%, and domestic debt nearing half of GDP. This has kept borrowing costs elevated and restricted the government’s fiscal space. Foreign direct investment remains extremely low at an estimated 0.5–0.6% of GDP, reflecting concerns over policy uncertainty, governance challenges, and weak investor confidence.

Employment generation remains subdued as well. Despite improving growth, unemployment is expected to fall only marginally from about 8.3% to around 7.5%, signalling the economy’s inability to generate sufficient jobs. Meanwhile, external vulnerabilities persist: tighter global financial conditions, commodity price swings, and climate-related disasters could easily disrupt the fragile stability. Renewable energy and climate commitments under the IMF’s Resilience and Sustainability Facility also require strong policy execution.

The IMF and independent economists emphasise that Pakistan’s stability remains dependent on continued reforms, especially in taxation, energy pricing, and state-owned enterprise restructuring. Sustained private investment and export diversification are needed to transition from stabilisation to durable growth.

In the medium term, while near-term default risks have eased, growth is expected to stay modest at around 3–3.5%, implying slow improvements in living standards and employment. High debt servicing will continue to constrain development spending, and weak investment limits long-term economic expansion. Pakistan’s ability to convert this stabilisation into sustainable growth will depend on consistent reforms, policy clarity, and resilience to external shocks.