Editorial
2024 marked a year of relative economic stabilization for Pakistan, with inflation significantly reduced, a slight improvement in the exchange rate, and interest rates nearly halved. However, despite these positive changes, the country still struggled with job creation and economic growth. Looking ahead to 2025, the question remains: can Pakistan build on this stabilization, or will the challenges that nearly pushed the country to default in 2023 resurface?
The outlook for 2025 suggests moderate volatility in key economic indicators. While some stabilization is expected, the year will be politically charged, especially with potential geopolitical shifts. Despite allegations of election rigging in 2024, Pakistan’s political stability was largely supported by international backing, particularly from the US, and a more lenient approach from the IMF. However, this leniency may not last, especially with the expected change in US leadership, potentially under Donald Trump, which could significantly affect Pakistan’s IMF program and its domestic politics.
The ongoing Middle East conflict, particularly tensions between the US and Iran, could have far-reaching effects on Pakistan’s economy. Additionally, shifting US-China relations could alter Pakistan’s positioning with both Washington and Beijing, further complicating the geopolitical landscape. The US’s evolving role in global affairs will also impact Pakistan’s relations with international institutions. Under the Biden administration, the US played a pivotal role in stabilizing Pakistan’s economy, but with a new government, tougher terms from the IMF and World Bank could emerge, especially if a new mission chief takes over the IMF program.
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Pakistan’s economic future hinges on several factors, including the continuation of the IMF program, which could face challenges due to missed tax revenue targets and unconfirmed financial assurances from Saudi Arabia and the UAE. Additionally, potential US tariffs on imports, especially targeting the textile sector, could strain Pakistan’s balance of payments.
Despite these challenges, there is hope for moderate economic growth in the latter half of 2025, driven by monetary easing. However, without structural reforms, such growth is likely to be short-lived. Investment and foreign inflows remain critical, but political uncertainty may discourage investors, putting Pakistan’s fragile recovery at risk.
