Trending
The International Monetary Fund (IMF) has warned that Pakistan’s external financial position could weaken as imports rise and remittance growth slows. The lender has urged greater exchange rate flexibility to protect foreign exchange reserves. It has also called for tighter monetary policy to contain inflation.
The IMF shared these concerns in its Middle East and Central Asia regional report, released on Thursday following the World Bank-IMF annual meetings.
“Over the medium term, external positions should strengthen in Egypt, Jordan and Morocco, supported by lower commodity prices and export diversification, but weaken in Pakistan as imports rise and remittances moderate,” the report said.
The warning comes days after the IMF reached a staff-level agreement to release Pakistan’s fifth loan tranche of $1 billion. The disbursement remains subject to the government completing the required prior actions.
The government expects Pakistan’s imports to reach $70 billion in the current fiscal year. It also projects remittances of $45.5 billion.
However, Pakistan continues to face challenges in expanding exports despite years of incentives for selected exporters.
Ryan Gosling’s Band Dead Man’s Bones Announces New Music After 17-Year Break
The IMF projects Pakistan’s current account deficit at 1% of gross domestic product (GDP), or around $4.5 billion. This estimate exceeds the government’s reported projection of approximately $2.5 billion.
The lender also estimates Pakistan’s gross financing needs at 22% to 25% of GDP. These needs remain high compared with those of peer economies, increasing the country’s exposure to financial risks.
The report highlights strong links between the government and commercial banks. It estimates that public debt accounts for 63% of banks’ exposure, a level the report describes as high compared with typical emerging-market levels.
The IMF warned that concerns over rising government debt could push borrowing costs above its baseline projections. Such an increase could intensify fiscal sustainability risks in countries with substantial financing needs, including Pakistan and Egypt.
The lender also stressed the role of exchange rate flexibility in managing external pressures.
“Exchange rate flexibility can help preserve reserves and facilitate external adjustment (Egypt, Pakistan) but may also increase inflationary pressures through higher import prices,” the report said.
Pakistan’s government has remained cautious about allowing the rupee to depreciate. Officials have cited the potential impact on inflation and questioned whether a weaker currency would deliver meaningful export growth.
On Thursday, the rupee appreciated by one paisa to Rs276.85 against the US dollar.
The IMF reported rising inflationary pressures in Pakistan and Egypt. In August, annual inflation reached 11.1% in Pakistan and 14.5% in Egypt.
The lender attributed the increases mainly to higher food and energy prices. In Egypt, currency depreciation also contributed to inflationary pressure.
The IMF now expects Pakistan’s inflation rate to reach 9.9%, which is 1.5 percentage points higher than its previous forecast.
The fund urged countries to tighten monetary policy when inflation exceeds targets and interest rates remain below estimated neutral levels. It identified Pakistan and the Kyrgyz Republic as particularly clear examples of this combination.
The warning comes ahead of the State Bank of Pakistan’s Monetary Policy Committee meeting. The committee may consider whether to raise the policy rate from its current level of 11.5%.
During recent review talks, Pakistani authorities described the existing monetary policy stance as appropriately tight.
The IMF also noted that countries with flexible exchange rates had taken different approaches to monetary policy since the conflict began. Pakistan was the only country in that group to raise interest rates after the conflict started, the report said.
The lender called on financial supervisors to monitor bank liquidity, funding conditions and asset quality. It highlighted sectors particularly exposed to the conflict, including tourism, transport and trade-related activities.
The IMF also warned about links between sovereign debt and banks in countries where public debt remains high. Banks in these economies hold substantial amounts of government securities, creating potential risks for both the financial system and public finances.
The report specifically identified Egypt, Pakistan and Tunisia as countries requiring attention in this area.
The IMF kept Pakistan’s economic growth forecast unchanged at 3.5%. This projection falls below the government’s 4% target and the World Bank’s forecast, according to the report.
During recent review talks, Pakistani authorities argued that the economy could achieve the official 4% growth target.
The IMF also noted that countries less directly affected by the conflict, including Egypt, Morocco, Tunisia and Pakistan, recorded stable or higher hotel occupancy rates in 2026 compared with the previous year.
On fiscal policy, the report expects many regional economies to adopt more expansionary positions in 2026 before resuming consolidation in 2027.
However, the IMF expects Pakistan to maintain a restrictive fiscal stance in 2026 because of its limited fiscal space. Bahrain and Iraq face similar constraints, while Qatar and Saudi Arabia are also expected to maintain restrictive policies.
[…] IMF Warns Pakistan’s External Position May Weaken as Imports Rise […]