Pakistan eyes 4.2% growth with IMF backing, CPEC push, and reform zeal
KARACHI: As Pakistan prepares to enter fiscal year 2025-26, the government of Prime Minister Shehbaz Sharif has laid out an ambitious but cautiously optimistic roadmap to restore economic momentum. At the heart of this revival plan is a proposed GDP growth target of 4.2%, which signals renewed confidence in the country’s macroeconomic stability and capacity for recovery, particularly in the agriculture and industrial sectors. But can this target be met in a climate of global uncertainty, domestic reforms, and regional tensions?
Pakistan’s post-budget discussions with the International Monetary Fund (IMF) have added a powerful layer of credibility to its growth agenda. The successful completion of the IMF review, accompanied by a $1 billion disbursement under the Extended Fund Facility (EFF) and additional support through the Resilience and Sustainability Facility (RSF), reflects the international lender’s renewed faith in Pakistan’s fiscal discipline and reform trajectory. These outcomes come amid Islamabad’s steadfast commitment to tight fiscal and monetary policies-a fourth consecutive year of consolidation aimed at correcting macroeconomic imbalances and restoring investor confidence.
Finance Minister Muhammad Aurangzeb, spearheading these negotiations, has underscored the government’s intent to cut import duties, privatise state-owned enterprises, and digitise tax collection through the Federal Board of Revenue (FBR). As Aurangzeb noted, “Countries run on taxes, not charity,” highlighting an aggressive stance against tax evasion and a drive to widen the tax net. The minister’s focus on fiscal transparency, industrial facilitation, and pension reforms marks a structural pivot necessary to support the projected growth trajectory.
The 4.2% growth forecast is built on a projected 4.4% expansion in commodity-producing sectors, with agriculture and industry each playing a revitalised role. After a dismal 0.6% growth in agriculture this year, the government plans a turnaround led by a 6.7% increase in important crops, a 7% rise in cotton ginning, and sustained 4.2% livestock growth. The goal is to fortify food security while generating rural employment.
The industrial outlook is equally ambitious. Large Scale Manufacturing (LSM) is expected to grow by 3.5%, alongside modest recoveries in construction, mining, and electricity sectors. These sectors are primed for support through tariff rationalisation, energy reforms, and inflows of foreign direct investment (FDI).
Despite reservations over the credibility of some current year growth estimates-such as the 29% spike in electricity, gas and water supply -the forward-looking plan adopts a more conservative and achievable trajectory, signalling a more realistic policy shift.
Trade, investment and diplomacy in full gear: One of the more dynamic elements of Pakistan’s growth strategy lies in its proactive economic diplomacy. Prime Minister Shehbaz Sharif’s administration has intensified engagement with Gulf countries, particularly the UAE, Saudi Arabia, and Turkey, securing commitments on investment, trade, and energy cooperation. Simultaneously, discussions with European partners have opened new channels for technology transfer, market access, and green investments.
Notably, the Planning Ministry under Ahsan Iqbal has placed strategic emphasis on China-Pakistan Economic Corridor (CPEC) 2.0, integrating it with the broader URAAN Pakistan vision. CPEC’s second phase will pivot towards industrial relocation, science and technology, and private-sector-led growth, reinforcing the export and productivity agenda. Ahsan Iqbal’s outreach to 20-25 Chinese economic zones and focus on drone technology, coastal tourism, and the blue economy aim to inject fresh dynamism into Pakistan’s structural transformation.
The World Bank’s ongoing support further strengthens the policy framework. A recent meeting between Finance Minister Aurangzeb and World Bank leadership reaffirmed Islamabad’s commitment to the 10-year Country Partnership Framework (CPF). The CPF’s Country Financing Framework (CFF) is viewed as a pivotal instrument to unlock targeted funding for key sectors.
The incoming WB Country Director, MsBolormaaAmgaabazar, joins at a time of rising momentum in Pakistan’s reform agenda. Her predecessor NajyBenhassine was credited with helping steer Pakistan through critical policy reforms, and continuity under Amgaabazar could further stabilise development assistance and technical support.
From vision to execution: The numbers game: The fiscal blueprint for 2025-26 lays out the following key targets:
= Inflation: 7.5% (from double-digit levels in recent years)
= National savings: 14.3% of GDP
= Investment-to-GDP ratio: 14.7% (up from 13.8%)
= Public investment: 3.2% of GDP
= Private investment: 9.8% of GDP
= Current account deficit: 0.4% of GDP
Though these figures reflect cautious optimism, the reality remains that Pakistan has historically struggled to meet annual growth and investment targets. However, the government now appears determined to break this trend through results-oriented governance, provincial cooperation, and timely policy interventions.
Finance Minister has noted the need for inter-provincial collaboration in fiscal matters, particularly in expenditure alignment and equitable distribution of resources – an element often neglected in previous frameworks. His collaborative approach has drawn appreciation from provincial chief ministers, signalling a more federated fiscal approach moving forward.
Overcoming obstacles: Geopolitical friction, particularly with India, poses a persistent challenge. Yet, despite ongoing border tensions and India’s maligning efforts, Pakistan’s stock market has demonstrated resilience, recording a forward movement fuelled by investor expectations of macroeconomic stability and reform continuity.
International confidence-manifested in recent IMF and World Bank affirmations-has helped offset regional anxieties. The government’s ability to maintain macro-financial equilibrium despite exogenous shocks, such as commodity price volatility and debt repayments, remains critical to sustaining investor sentiment.
The larger ambition embedded in URAAN Pakistan – transforming the economy into a $3 trillion entity by 2047 – is more than just rhetoric. It is a multi-decade reform vision centred around the “5Es”: Exports, E-Pakistan, Environment, Energy, and Equity. When aligned with CPEC 2.0 and global financial partnerships, it forms a credible foundation for long-term prosperity.
Whether it is the digitisation of FBR, privatisation of loss-making enterprises like PIA, or the B2B cooperation under CPEC, each component feeds into a coherent strategy to make Pakistan a more competitive, transparent, and resilient economy.
Pakistan’s proposed 4.2% growth target is more than just a number-it represents a litmus test for the Shehbaz Sharif government’s ability to implement reforms, attract investment, and navigate external vulnerabilities. Supported by multilateral partners like the IMF and World Bank, buoyed by diplomatic success with the Gulf and China, and guided by a committed economic team, Pakistan appears better prepared than in recent years to pursue sustainable growth.
Execution, however, remains the Achilles’ heel. The journey from promise to performance will demand uninterrupted reform, regional stability, and unwavering political commitment. If sustained, Pakistan’s growth engine may not only recover – but roar back to life.
The incoming WB Country Director, MsBolormaaAmgaabazar, joins at a time of rising momentum in Pakistan’s reform agenda. Her predecessor NajyBenhassine was credited with helping steer Pakistan through critical policy reforms, and continuity under Amgaabazar could further stabilise development assistance and technical support.
From vision to execution: The numbers game: The fiscal blueprint for 2025-26 lays out the following key targets:
= Inflation: 7.5% (from double-digit levels in recent years)
= National savings: 14.3% of GDP
= Investment-to-GDP ratio: 14.7% (up from 13.8%)
= Public investment: 3.2% of GDP
= Private investment: 9.8% of GDP
= Current account deficit: 0.4% of GDP
Though these figures reflect cautious optimism, the reality remains that Pakistan has historically struggled to meet annual growth and investment targets. However, the government now appears determined to break this trend through results-oriented governance, provincial cooperation, and timely policy interventions.
Finance Minister has noted the need for inter-provincial collaboration in fiscal matters, particularly in expenditure alignment and equitable distribution of resources – an element often neglected in previous frameworks. His collaborative approach has drawn appreciation from provincial chief ministers, signalling a more federated fiscal approach moving forward.
Overcoming obstacles: Geopolitical friction, particularly with India, poses a persistent challenge. Yet, despite ongoing border tensions and India’s maligning efforts, Pakistan’s stock market has demonstrated resilience, recording a forward movement fuelled by investor expectations of macroeconomic stability and reform continuity.
International confidence-manifested in recent IMF and World Bank affirmations-has helped offset regional anxieties. The government’s ability to maintain macro-financial equilibrium despite exogenous shocks, such as commodity price volatility and debt repayments, remains critical to sustaining investor sentiment.
The larger ambition embedded in URAAN Pakistan – transforming the economy into a $3 trillion entity by 2047 – is more than just rhetoric. It is a multi-decade reform vision centred around the “5Es”: Exports, E-Pakistan, Environment, Energy, and Equity. When aligned with CPEC 2.0 and global financial partnerships, it forms a credible foundation for long-term prosperity.
Whether it is the digitisation of FBR, privatisation of loss-making enterprises like PIA, or the B2B cooperation under CPEC, each component feeds into a coherent strategy to make Pakistan a more competitive, transparent, and resilient economy.
Pakistan’s proposed 4.2% growth target is more than just a number-it represents a litmus test for the Shehbaz Sharif government’s ability to implement reforms, attract investment, and navigate external vulnerabilities. Supported by multilateral partners like the IMF and World Bank, buoyed by diplomatic success with the Gulf and China, and guided by a committed economic team, Pakistan appears better prepared than in recent years to pursue sustainable growth.
Execution, however, remains the Achilles’ heel. The journey from promise to performance will demand uninterrupted reform, regional stability, and unwavering political commitment. If sustained, Pakistan’s growth engine may not only recover – but roar back to life.
