IMF urges Pakistan to ‘move away’ from state-led growth model, calls for structural reforms

The Executive Directors of the International Monetary Fund (IMF) said Pakistan needs to “move away” from its state-led growth model and strengthen the business environment.

The authorities also need to “ensure a more even playing field with freer competition to reverse the decline in living standards,” the IMF said.

The Washington-based lender made these remarks in a detailed report released on Friday after its Executive Board approved Pakistan’s request for a $7-billion, 37-month Extended Fund Facility (EFF) earlier in the week.

In its report, the IMF Directors said the new programme priorities include reforming SOEs, removing trade barriers and market distortions, and strengthening governance frameworks.

Despite progress, Pakistan’s vulnerabilities, structural challenges remain formidable: IMF

It emphasised the need for further steps towards building climate resilience through the effective implementation of the C-PIMA action plan and enhanced climate adaptation investments.

The directors, noting the still high risks and narrow path to sustained stability, urged continued strong commitment and ownership of sound policies and structural reforms under the Extended Arrangement to create the conditions for durable and inclusive growth and to put debt firmly on a downward trajectory.

“They emphasised in particular the criticality of sustained programme implementation, supported by capacity development and close collaboration with development partners, to mobilize additional financing and restore market access,” read the statement.

The Directors also stressed the importance of vigilant monitoring of programme implementation, close consultation with the Executive Board, and robust contingency planning to safeguard the program’s success.

“Directors urged steadfast execution of the planned continued consolidation in the FY25 Budget and underscored the need for sustained gradual consolidation, underpinned by strengthening of fiscal institutions, to durably improve debt sustainability.

“In this regard, some Directors noted that given the ambitious growth projections, there is no room for policy slippages without undermining debt sustainability,” it said.

IMF Directors also called for reforms to strengthen the fiscal framework, including federal-provincial institutional arrangements; measures to ensure the energy sector’s lasting sustainability, including through cost-based tariffs; and enhanced liquidity and debt management.

The lender’s officials emphasised the importance of allowing the exchange rate to serve as a shock absorber, buffering competitiveness and helping rebuild reserves, and also called for continued enhancements in the AML/CFT framework.

“Directors noted the Ex-post Peer Review assessment and the negative impact caused by deviations from programmed policies, and stressed the importance of strong ownership for programme implementation and financing,” read the notice.