ISLAMABAD: The International Monetary Fund (IMF) has warned that Pakistan’s external financial position could come under pressure due to rising imports and a slowdown in remittances, urging the country to maintain exchange rate flexibility and tighten monetary policy if inflationary pressures persist.
According to the IMF’s latest regional report on the Middle East and Central Asia, Pakistan’s current account deficit could reach 1% of gross domestic product (GDP), equivalent to approximately $4.5 billion. This projection is significantly higher than the government’s official estimate of around $2.5 billion.
The report was released following the annual meetings of the World Bank and the IMF last week.
External Financing Needs Remain High
The IMF estimates that Pakistan’s gross external financing requirements could remain between 22% and 25% of GDP, considerably higher than those of comparable economies. The Fund warned that this could expose the country to significant financial risks.
While the external positions of Egypt, Jordan and Morocco are expected to improve over the medium term due to lower commodity prices and greater export diversification, Pakistan could face additional pressure from increasing imports and slower remittance growth.
IMF Calls for Exchange Rate Flexibility
The Fund emphasized the importance of maintaining exchange rate flexibility to safeguard foreign exchange reserves and help the economy adjust to external pressures.
However, the Pakistani government has remained cautious about allowing further depreciation of the rupee because of concerns that it could fuel inflation. The potential benefits for exports also remain uncertain.
In the interbank market, the Pakistani rupee gained one paisa against the US dollar, closing at Rs276.85, according to the figures cited in the report.
Monetary Policy May Need Further Tightening
The IMF advised countries to remain prepared to tighten monetary policy, particularly where inflation exceeds official targets and the current policy stance appears relatively accommodative.
Pakistan and Kyrgyzstan were highlighted as economies where policy interest rates remain below estimated neutral levels.
The report also noted that countries had adopted different interest rate responses following the onset of the conflict discussed in the assessment. Among countries with flexible exchange rate regimes, Pakistan was the only country that raised interest rates after the conflict began.
Government Borrowing Poses Financial Risks
The IMF also highlighted the close relationship between the government and commercial banks in Pakistan.
According to the report, government-related exposure accounted for approximately 63% of banks’ total assets or investments, a level considerably higher than the typical exposure in emerging economies.
The Fund warned that concerns about rising government debt could increase borrowing costs beyond baseline projections. This could intensify financial stability risks in countries such as Pakistan and Egypt, where overall financing requirements are already substantial.
Pakistan’s Growth Forecast Remains at 3.5%
The IMF maintained its forecast for Pakistan’s economic growth at 3.5%, below the government’s official target of 4% and also lower than the World Bank’s estimate, as described in the report.
On the fiscal front, the Fund expects fiscal policy to remain relatively accommodative across several regional economies during 2026, with fiscal consolidation and spending restraint potentially resuming from 2027.
The IMF’s assessment underscores the challenges facing Pakistan as it seeks to maintain foreign exchange reserves, manage external financing requirements, contain inflation and sustain economic growth.