ISLAMABAD: The International Monetary Fund (IMF) has projected Pakistan’s gross external financing needs at $19.316 billion i.e. 4.7 percent of the GDP for the next fiscal year 2025-26.

The Fund in its report “First review under the Extended Fund Facility (EFF) arrangement, requests for modification of performance criteria, and request for an arrangement under the Resilience and Sustainanble Facility (RSF)”, stated that the country’s external financing need would be $19.757 billion in the fiscal year 2026-27.

The Fund stated that the program is fully financed, with firm commitments for the next 12 months and good prospects for the remainder of the Fund-supported program.

Substantial progress has been made in realizing financing committed ahead of the EFF request, with $2.6 billion already disbursed or expected to disburse in the coming months, including from Saudi Arabia, the Islamic Development Bank, and a commercial loan backed by an ADB-partial guarantee.

The report noted that firm commitments are also in place for an additional $1 billion of financing in the next 12 months. Key bilateral partners remain committed to rolling over existing short-term liabilities in the remaining program period.

Pakistan’s capacity to repay the Fund has improved somewhat but remains subject to significant downside risks and critically dependent on policy implementation and timely external financing. The Fund’s exposure would peak at SDR 9,466 million in September 2027(466 percent of quota and about 51 percent of projected gross reserves in 2027).

Pakistan’s outstanding debt to the Fund as a percent of gross international reserves is above the 75 percentile of comparator countries. The three flow indicators (i.e. debt-service to the fund as a percent of government revenues, exports, and gross international reserves) are all above the 75 percentiles of the comparator group, indicating significant risks.

Risks to consistent policy implementation include resistance to adoption of reforms, underperformance of tax revenue, high gross financing needs, low gross reserves, and sizeable net FX derivative position of the State Bank of Pakistan, coupled with socio-political tensions, which could erode repayment capacity and debt sustainability.

Uncertainty about global geo-economic and financial conditions in major trading partners adds to these risks. Adequate and timely execution of the firm and credible financing assurances from official creditors remains essential to mitigate these risks.

The Fund stated that while there is considerable uncertainty about the final impact on the economy, the tariffs and subsequent financial market reaction are expected to weigh on Pakistan’s exports and GDP, with growth revised down marginally in fiscal year 2025 (as less than a quarter is left in the year) and around 0.3 percentage points in fiscal year 2026.

In addition to the direct impact on Pakistan’s exports to the US, Pakistan is expected to face indirect effects including via the impact of the tariffs on the economies of Pakistan’s other trading partners, tighter global financial conditions, potentially lower remittances, and increased trade policy uncertainty. The net impact on the balance of payments is projected to be moderated by the recent commodity price declines and the downgrade in activity, which will reduce Pakistan’s import bill. Pakistan’s sovereign spreads have increased sharply since April 2, but market access to external financing in the near term is already limited vitiating any near-term impact. Nonetheless, if outflow pressures intensify it will be critical that the exchange rate is allowed to adjust. The net impact on inflation is also projected to be modest, with some downward pressure expected from lower commodity prices and weaker growth.

Amid an increasingly uncertain external environment, geopolitical frictions could adversely impact external stability via higher commodity prices, a tightening in global financial conditions, or greater protectionism in key trading partners. Considering Pakistan’s high exposure to natural disasters, weather-related events could further elevate fiscal and external pressures.

The Fund stated that it is critical that policy and structural reforms are implemented consistently, and delays or slippages are avoided as they could jeopardize the nascent economic recovery and the path to debt and external sustainability, and could adversely impact the external financing outlook, including from bilateral partners.—TAHIR AMIN