ISLAMABAD(THe COW News Digital) The International Monetary Fund (IMF) has warned that Pakistan’s external financial position risks significant weakening due to rising imports and slowing worker remittance growth.
In its Regional Economic Outlook for the Middle East and Central Asia released Thursday, the global lender urged Pakistani authorities to maintain exchange rate flexibility to protect foreign exchange reserves and tighten monetary policy further to curb persistent inflationary pressures.
According to the IMF report, while countries such as Egypt, Jordan, and Morocco are projected to strengthen their external balances over the medium term through commodity price relief and export diversification, Pakistan faces deteriorating external accounts. The Fund projected Pakistan’s current account deficit to reach 1 percent of Gross Domestic Product (GDP)—approximately $4.5 billion—substantially higher than the federal government’s official projection of $2.5 billion.
The IMF highlighted that Pakistan’s gross external financing requirements are expected to range between 22 and 25 percent of GDP, a level significantly higher than peer emerging economies, posing substantial refinancing risks.
Furthermore, the report emphasized the deep sovereign-bank nexus in the domestic financial sector. Sovereign debt exposure accounts for approximately 63 percent of total commercial banking assets and investments in Pakistan, far exceeding averages seen across emerging markets. The IMF cautioned that rising government debt concerns could drive borrowing costs beyond baseline estimates, deepening fiscal sustainability challenges.
Regarding monetary policy, the IMF noted that central banks should remain prepared to tighten policy, particularly in nations where inflation remains elevated and monetary stances appear accommodative. The report identified Pakistan alongside the Kyrgyz Republic where policy rates remain below estimated neutral levels.
Despite these warnings, the IMF maintained Pakistan’s economic growth projection at 3.5 percent for the current fiscal year, remaining below the government’s official target of 4 percent and World Bank estimates.
