Pakistan stock markets crash: India’s actions, IMF report, and a persistent problem

This was the second jolt for Pakistan’s markets in the last few days. Before this, on April 22, the International Monetary Fund (IMF) cut the growth forecast for Pakistan to 2.6 per cent. All of this comes at a time when Pakistan’s economy has been doing better by its standards after a long period of crisis, and can ill-afford further shocks.

In the past three months, the IMF, the World Bank, and the credits rating agency Fitch have all commented on Pakistan. Here’s a snapshot of its economy from their reports.

IMF on Pakistan

Pakistan’s economy is heavily dependent on the loans it has secured from the IMF — key being the 37-month Extended Fund Facility (EFF) — and thus that institution’s assessment is crucial for it.

The IMF report released earlier this week slashed Pakistan’s growth forecast for this fiscal year to 2.6 per cent from the 3 per cent it had projected in January. This was largely due to the expected impact of US President Donald Trump’s now-paused tariffs. Trump had slapped a 29 per cent tariff on imports from Pakistan, which he then paused for 90 days. The US imported goods worth $5.1 billion in 2024 from Pakistan, mainly textiles.

In the last week of March, an IMF team reached a staff-level agreement with Pakistan on the first review of the EFF and on a different loan under the IMF’s Resilience and Sustainability Facility.

“The staff-level agreement is subject to approval of the IMF’s Executive Board. Upon approval, Pakistan will have access to about US$1.0 billion (SDR 760 million) under the EFF, bringing total disbursements under the program to about US$2.0 billion,” the IMF said in a press release. Under the Resilience and Sustainability Facility loan, Pakistan will get $1.3 billion over 28 months.

Nathan Porter, the IMF team lead, said after the March agreement, “Over the past 18 months, Pakistan has made significant progress in restoring macroeconomic stability and rebuilding confidence… inflation has declined to its lowest level since 2015, financial conditions have improved, sovereign spreads have narrowed significantly, and external balances are stronger.”

Aming risks, he highlighted “potential macroeconomic policy slippages—driven by pressures to ease policies—along with geopolitical shocks to commodity prices, tightening global financial conditions, or rising protectionism”, along with climate-related risks.

The World Bank

The World Bank released its estimates on April 23. “Pakistan’s economy continues to stabilise and is expected to grow by 2.7 percent in the current fiscal year ending June 2025, up from 2.5 percent in the previous year,” the report said.

It also highlighted the problems, “Agriculture saw limited growth, in part due to adverse weather and pest infestations. Industrial activity declined, impacted by higher input costs and taxes, and reduced government spending. Similarly, growth of the services sector was muted given limited spillovers from weak agriculture and industrial activity. While expected to strengthen, economic growth will remain tepid, making job creation and poverty reduction amid high population growth challenging.”

All of this does not sound like the economy is doing well. However, things now are far better than they were at the crisis point of May 2023, when inflation was at 38.50%, growth was negative, and forex could cover barely a few weeks of restricted imports.

Fitch on Pakistan

In February, Fitch in a report said, “The State Bank of Pakistan’s decision to cut policy rates to 12% on 27 January underscored recent progress in taming consumer price inflation, which fell to just over 2% yoy in January 2025, down from an average of nearly 24% in the fiscal year ended June 2024 (FY24).”

However, it also pointed out that, “Progress on difficult structural reforms will be key to upcoming IMF programme reviews and continued financing from other multilateral and bilateral lenders.”

For these “structural reforms”, Pakistan is expected to raise taxes and pull back on “protectionism”. As part of this, it recently scrapped Minimum Support Price (MSP) for its crops.