Islamabad, January 12, 2024 : IMF executive board has approved first review for Pakistan under the Stand By Agreement (SBA) which is likely to lead to the release of US$700mn tranche. This will take total disbursement by IMF under the SBA program to US$1.9bn to Pakistan and will help support foreign exchange reserves of the country.
We believe that after IMF board approval, more dollar funding for Pakistan is likely from Bi-lateral, Multi-lateral and other sources. This will also facilitate rollovers, supporting foreign exchange reserves and bringing stability to the currency.
In its press release, IMF stated that economic activity has stabilized, though the outlook remains challenging and contingent on the implementation of sound policies.
IMF has revised its forecast for few macro indicators, as mentioned below:
GDP Growth:
IMF has revised its projected GDP growth from 2.5% to 2% for FY24. We estimate Pakistan GDP to clock in at around 3% in FY24.
Inflation:
IMF expects inflation to remain elevated. However, with appropriately tight policies, it could decline to 18.5% (earlier 16.2%) by the end of June 2024, with an average inflation rate of 24% (earlier 26%) for FY24. We think, this indicates a cut in policy rate, which currently stands at 22%.
We expect inflation to be 17.5% by the end of June 2024, with an average inflation rate of 23% for FY24. Additionally, we anticipate a 700bps cut in the policy rate in 2024, reaching 15% by Dec-2024.
Gross Reserves:
IMF now expects gross reserves to be US$9.1bn by June 2024, up from the earlier estimate of US$8.9bn. We anticipate reserves to be US$8-10bn by June 2024.
Current Account:
IMF has also revised down its Current Account Deficit forecast to 1.6% of GDP (US$5.7bn) from earlier projection of 1.8% of GDP (US$6.4bn) for FY24. We estimate CAD to clock in at 1.1% of GDP (US$4bn) in FY24.
