IMF Review to Boost Pakistan’s Debt Rollovers and Stabilize Currency
Staff Report
IMF Review is likely to boost Pakistan’s debt rollovers, bolster foreign exchange reserves, and stabilize the currency.
The IMF Executive Board has approved the first review of Pakistan’s Stand-By Agreement (SBA), potentially leading to the release of a US$700 million tranche.
This would increase the total disbursement under the SBA program to US$1.9 billion, aiding Pakistan’s foreign exchange reserves.
Post-approval by the IMF board, we anticipate more dollar funding for Pakistan from bilateral, multilateral, and other sources. New IMF funding for Pakistan|Highlights
This is expected to facilitate debt rollovers, bolster foreign exchange reserves, and stabilize the currency.
According to the IMF’s press release, economic activity in Pakistan has stabilized, but the outlook remains challenging and depends on the implementation of robust policies.
The IMF has revised its forecasts for several macroeconomic indicators as follows:
GDP Growth: The IMF has lowered its GDP growth projection for FY24 from 2.5% to 2%. We predict Pakistan’s GDP growth to be around 3% in FY24.
Inflation: The IMF expects high inflation but projects a decline to 18.5% by the end of June 2024 (previously 16.2%), with an average rate of 24% for FY24 (previously 26%).
This suggests a potential reduction in the policy rate, currently at 22%. We forecast inflation at 17.5% by the end of June 2024, with an average rate of 23% for FY24.
Additionally, we anticipate a 700 basis points reduction in the policy rate in 2024, reaching 15% by December 2024.
Gross Reserves: The IMF now forecasts gross reserves to reach US$9.1 billion by June 2024, up from the previous estimate of US$8.9 billion. Our estimate places reserves between US$8-10 billion by June 2024.
Current Account: The IMF has revised its Current Account Deficit (CAD) forecast to 1.6% of GDP (US$5.7 billion), down from 1.8% of GDP (US$6.4 billion) for FY24. We estimate the CAD at 1.1% of GDP (US$4 billion) in FY24.
