Pakistan's economic stabilisation programme faces renewed strain as widening revenue shortfalls and a deteriorating external balance risk undermining key targets ahead of a crucial International Monetary Fund review.
The IMF mission is expected to assess progress under a $7.2 billion facility, with the release of a further $1.2 billion contingent on performance. While headline indicators suggest partial compliance, underlying imbalances point to growing fragility.
Economic growth has marginally exceeded expectations in the early months of the fiscal year, reaching 3.7 percent in the first quarter against a projected 3.2 percent. Manufacturing activity has shown a notable rebound, expanding by nearly 6 percent. Inflation has also remained below projections, averaging 5.2 percent during the first half of the year.
Yet these gains are offset by emerging weaknesses. The current account has slipped back into deficit, recording a shortfall of $1.2 billion in the first six months, compared with a surplus in the previous year. Export performance has been particularly disappointing, declining by 5 percent against an expected modest increase, while imports have surged by over 12 percent.
If these trends persist, the external deficit could widen significantly by the end of the fiscal year, placing renewed pressure on foreign exchange reserves. This divergence from IMF projections highlights the vulnerability of the country's balance of payments.
Fiscal performance presents a similarly mixed picture. Tax revenues have fallen short of targets, with collections of around Rs6.16 trillion in the first half of the year-well below the expected Rs6.49 trillion. Achieving the annual target would now require an implausibly high growth rate in collections during the remaining months.
Provincial revenues, by contrast, have exceeded expectations, reflecting strong growth. Government spending has also been contained, aided by a sharp decline in debt servicing costs following earlier reductions in interest rates. Development expenditure has risen, suggesting some fiscal space for growth-oriented initiatives.
However, the apparent strength of the fiscal position is partly attributable to accounting effects. A large transfer of central bank profits inflated the primary surplus, complicating comparisons with programme targets. Adjusted for these transfers, the surplus may fall short of IMF benchmarks.
Officials have reiterated their commitment to fiscal discipline. The government aims to achieve a primary surplus of 1.6 percent of GDP, supported by revenue measures and expenditure controls. Subsidies, particularly in the power sector, are being capped, while broader austerity measures are being implemented to contain spending.
At the same time, policy flexibility remains limited. Commitments under the IMF programme include maintaining a market-based exchange rate and implementing structural reforms, including controversial measures in the agricultural sector such as limiting support pricing and introducing new taxes on inputs.
These reforms have raised concerns about potential economic and social impacts, particularly in sectors already under pressure. Export performance has also shown signs of strain, with shipments to key markets such as China and the European Union declining in the first half of the fiscal year.
Despite these challenges, some programme targets appear to have been met, including reserve accumulation and certain fiscal indicators. This suggests that the review process may proceed without major disruption, though risks remain.
The broader picture is one of partial stabilisation without full consolidation. While macroeconomic indicators have improved in some areas, structural weaknesses-particularly in revenue generation and external trade-continue to pose significant risks.
The outcome of the IMF review will therefore hinge not only on past performance but on the credibility of corrective measures. Without stronger revenue mobilisation and improved export competitiveness, the gap between targets and outcomes may widen further.
For now, Pakistan's economic trajectory remains finely balanced. The stabilisation achieved under the programme has bought time, but sustaining it will require more than incremental adjustments.