IMF Warns of High Risks for Pakistan’s Economy amid Political Instability and External Challenges

According to the International Monetary Fund (IMF), downside risks for Pakistan’s economy remain exceptionally high, as stated in their staff report published on May 10 before they commence negotiations for a longer-term program. An IMF delegation is set to visit Pakistan this month before the government begins its annual budget-making process for the upcoming fiscal year. The IMF warned that although the newly elected administration has pledged to maintain the policies of the Standby Arrangement (SBA), political instability continues to pose a significant threat. Higher prices of commodities and transportation disruptions, as well as stricter worldwide financial circumstances, could negatively impact external stability for Pakistan’s financially strained economy, according to the IMF. The organization emphasized the need for prompt post-program external funding disbursements due to Pakistan’s successful conclusion of a $3 billion short-term plan last month, which prevented a sovereign default. However, Pakistan’s Prime Minister Shehbaz Sharif has expressed the necessity for a newer, lengthier program. Pakistan’s economy, valued at $350 billion, narrowly avoided default last summer, and inflation has decreased to roughly 17% in April from a high of 38% last May. Nevertheless, Pakistan is still grappling with a substantial budgetary shortfall, and while it has reduced its current account imbalance via import restrictions, it has resulted in a sluggish economy, predicted to expand by roughly 2% this year versus a decline in the preceding year. Pakistan is projected to request at least $6 billion and petition for further financing from the Fund under the Resilience and Sustainability Trust. (Reporting by Ariba Shahid in Karachi; editing by Alistair Bell)