KARACHI: Most analysts predict a seventh consecutive rate cut by Pakistan’s central bank on Monday, amid the country’s first International Monetary Fund (IMF) review for its $7 billion bailout and near-decade low inflation.
Pakistan’s central bank’s current easing cycle, one of the most aggressive among emerging markets, follows a six-month series of rate cuts totalling 1000 basis points (bps), which brought the key rate down from a record high of 22 percent in June to 12 percent, with the latest 100 bps cut in January.
As Pakistan undergoes economic reforms mandated by the IMF program, it stands to secure additional funding from the global lender, pending the ongoing review.
The cash-strapped South Asian nation could unlock a tranche of funding if the ongoing review is approved, ahead of its annual budget presentation looming in June.
Inflation for the month of February clocked in at a near decade low of 1.5 percent, largely due to a high base a year-ago.
A Reuters survey of 14 analysts suggests that the central bank may further reduce rates, with a median forecast of a 50 bps cut.
Of the 10 analysts who expect a rate cut: three anticipate a 100 bps cut, one a 75 bps cut, and six a 50 bps cut. The remaining four analysts predict no change.
Most analysts predicting a rate cut believe the central bank will stop reductions when rates hit 10.5-11 percent, due to a potential inflation rise and anticipate a moderate rise in inflation from March to May.
Ahmad Mobeen, senior economist of S&P Global predicts inflation will “bottom out” in Q1, then gradually rise.
He anticipates a 6.1 percent average inflation for 2025. Despite the “sharp drop” in the Consumer Price Index (CPI), he notes that urban core inflation, indicative of ongoing price pressures, remains high at 7.8 percent.
“The S&P Global HBL Pakistan Manufacturing PMI also indicates rising input costs, pushing manufacturers to hike prices in February 2025 at the fastest pace since October 2024,” he said.
In the last policy meeting, the bank maintained its forecast of full-year GDP growth at 2.5 percent-3.5 percent and predicted faster growth would help boost the country’s previously struggling foreign exchange reserves.
“While GDP posted 0.9 percent growth in 1QFY25, large-scale manufacturing remains in negative territory, and production has yet to gain momentum. The transmission of lower rates to economic activity is yet to be seen,” said Sana Tawfik, head of research at Arif Habib Limited.
She added that the target is only possible if industrial activity picks up and agricultural output improves.
POLL: Pakistan eyes seventh straight rate cut amid decade low inflation, IMF review
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POLL: Pakistan eyes seventh straight rate cut amid decade low inflation, IMF review
- Pakistan follows a six-month series of rate cuts, which brought the key rate down from a record high of 22 percent in June to 12 percent in January
- As Pakistan undergoes economic reforms mandated under the IMF program, it stands to secure additional funding from the global lender
IMF warns against policy slippage amid weak recovery as it clears $1.2 billion for Pakistan
- Pakistan rebuilt reserves, cut its deficit and slowed inflation sharply over the past one year
- Fund says climate shocks, energy debt, stalled reforms threaten stability despite recent gains
ISLAMABAD: Pakistan’s economic recovery remains fragile despite a year of painful stabilization measures that helped pull the country back from the brink of default, the International Monetary Fund (IMF) warned on Thursday, after it approved a fresh $1.2 billion disbursement under its ongoing loan program.
The approval covers the second review of Pakistan’s Extended Fund Facility (EFF) and the first review of its climate-focused Resilience and Sustainability Facility (RSF), bringing total disbursements since last year to about $3.3 billion.
Pakistan entered the IMF program in September 2024 after years of weak revenues, soaring fiscal deficits, import controls, currency depletion and repeated climate shocks left the economy close to external default. A smaller stopgap arrangement earlier that year helped avert immediate default, but the current 37-month program was designed to restore macroeconomic stability through strict monetary tightening, currency adjustments, subsidy rationalization and aggressive revenue measures.
The IMF’s new review shows that Pakistan has delivered significant gains since then. Growth recovered to 3 percent last year after shrinking the year before. Inflation fell from over 23 percent to low single digits before rising again after this year’s floods. The current account posted its first surplus in 14 years, helped by stronger remittances and a sharp reduction in imports. And the government delivered a primary budget surplus of 1.3 percent of GDP, a key program requirement. Foreign exchange reserves, which had dropped dangerously low in 2023, rose from US$9.4 billion to US$14.5 billion by June.
“Pakistan’s reform implementation under the EFF arrangement has helped preserve macroeconomic stability in the face of several recent shocks,” IMF Deputy Managing Director Nigel Clarke said in a statement after the Board meeting.
But he warned that Islamabad must “maintain prudent policies” and accelerate reforms needed for private-sector-led and sustainable growth.
The Fund noted that the 2025 monsoon floods, affecting nearly seven million people, damaging housing, livestock and key crops, and displacing more than four million, have set back the recovery. The IMF now expects GDP growth in FY26 to be slightly lower and forecasts inflation to rise to 8–10 percent in the coming months as food prices adjust.
The review warns Pakistan against relaxing monetary or fiscal discipline prematurely. It urges the State Bank to keep policy “appropriately tight,” allow exchange-rate flexibility and improve communication. Islamabad must also continue raising revenues, broadening the tax base and protecting social spending, the Fund said.
Despite the progress, Pakistan’s structural weaknesses remain severe.
Power-sector circular debt stands at about $5.7 billion, and gas-sector arrears have climbed to $11.3 billion despite tariff adjustments. Reform of state-owned enterprises has slowed, including delays in privatizing loss-making electricity distributors and Pakistan International Airlines. Key governance and anti-corruption reforms have also been pushed back.
The IMF welcomed Pakistan’s expansion of its flagship Benazir Income Support Program, which raises cash transfers for low-income families and expands coverage, saying social protection is essential as climate shocks intensify. But it warned that high public debt, about 72 percent of GDP, thin external buffers and climate exposure leave the country vulnerable if reform momentum weakens.
The Fund said Pakistan’s challenge now is to convert short-term stabilization into sustained recovery after years of economic volatility, with its ability to maintain discipline, rather than the size of external financing alone, determining the durability of its gains.
