Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
The global economy is witnessing a turbulent transformation shaped by policy realignments, geopolitical frictions, and structural transitions. The latest ‘World Economic Outlook’ of the International Monetary Fund (IMF), titled ‘Global Economy in Flux, Prospects Remain Dim’, paints a sobering picture of the post-tariff world order where resilience is slowly giving way to warning signs.
The global economic narrative is now defined by subdued growth, uneven disinflation, and eroding confidence in fiscal and institutional credibility. The IMF projects global output growth to slow from 3.3 percent in 2024 to 3.2 percent in 2025 and further to 3.1 percent in 2026. The advanced economies are expected to hover near 1.5 percent growth while emerging markets and developing economies will edge just above 4 percent. World trade is projected to grow by just 2.9 percent in 2025–26, below pre-pandemic levels, due to rising tariffs and policy related challenges.
The world economy, according to IMF, has entered an era where policy direction rather than macro fundamentals drives market confidence. The new protectionist wave, front-loaded investments, and fragmented trade environment have created a model where short-term resilience masks long-term fragility.
IMF cautions that the temporary boost seen in early 2025 was largely a result of front-loaded trade activity and restructured supply chains, rather than genuine expansion. As these temporary factors fade they will expose underlying weakness of global demand. Rise in tariffs by the United States and reciprocal adjustments by its trading partners have imposed a structural cost on efficiency and productivity.
IMF also highlights that inflation, though declining globally, remains above the target in the United States and uneven elsewhere. The Fund warns that prolonged policy uncertainty, fiscal fragilities, and pressure on central bank’s independence could amplify downside risks. The report acknowledges that not all is bleak, as emerging markets’ resilience has outperformed earlier expectations. The emerging markets, supported by improved monetary frameworks and better fiscal discipline, have withstood global headwinds more effectively than in previous crises.
IMF stresses that this economic pliability, however, is conditional on credible institutions and sustainable macroeconomic frameworks cautioning that erosion of policy transparency or institutional autonomy could reverse the fragile confidence built over the past decade. The Fund’s recommendation remains clear, policymakers must restore predictability through credible fiscal adjustment, preserve the autonomy of central banks, and adopt transparent data practices to sustain investor confidence.
IMF’s projections for Pakistan sit within this broader global context of fragility and cautious optimism. The Fund has revised Pakistan’s GDP growth projection to 2.7 percent for FY 2024–25 and 3.6 percent for FY 2025–26, particularly below the government’s ambitious target of 4.2 percent. The report clarifies that these projections do not yet incorporate the potential economic cost of the 2025 monsoon floods, which could depress agricultural output and rural income.
The inflation outlook has been revised upward, with consumer prices expected to rise from 4.5% in 2025 to 6% in 2026. Unemployment rate is forecast to ease marginally from 8% to 7.5%, suggesting moderate improvement in labor markets, though the current account balance is expected to slip from a surplus of 0.5% in 2025 to a deficit of 0.4% in 2026. The fiscal deficit is projected to narrow down from 5.3% to 4.1% of GDP, reflecting the government’s ongoing fiscal consolidation efforts.
IMF’s regional analysis places Pakistan among economies struggling to balance growth aspirations with macroeconomic stability. The Fund’s emphasis on preserving institutional credibility and data transparency holds special significance for Pakistan, where discrepancies in trade reporting and fiscal accounting have periodically undermined investor trust.
IMF notes that while Pakistan has shown progress in external stability, its medium-term prospects remain contingent upon structural reforms, export diversification, and sustained fiscal discipline. The Fund’s baseline scenario assumes continuity in existing policy frameworks, but any deviation whether through political disruptions or data inconsistencies could alter the trajectory.
The recent trade data of Pakistan offers an insightful window into both progress and vulnerability. Total exports during FY 2025 amounted to approximately US$ 33 billion, while imports stood around US$ 58 billion, producing a trade deficit of US$ 25 billion. Remittance inflows and tighter import management, however, enabled Pakistan to record a current account surplus of US$ 2.1 billion, the first in 14 years and the largest in 22 years.
This achievement, though significant, has triggered a critical debate among economists regarding its sustainability. The consensus among prudent analysts is that the surplus results primarily from import reduction, rigorous administrative measures, and payment restrictions which have artificially limited demand, rather than from export growth or productivity improvements. IMF warns that import restrictions alone would not ensure lasting external stability.
The apparent turnaround on the external front has indeed stabled exchange rate and reduced inflation in the short term, but structural instability remains. Pakistani rupee has stabilized due to better current account performance. The long-term strength of Pakistan’s external sector depends not on temporary import restrictions but on export diversification, higher value-added production, and a stable investment climate that can attract foreign direct investment.
The transparency of economic data has become a critical policy concern in this context. Over the last fiscal year, significant discrepancies have surfaced between trade data reported by the Pakistan Single Window (PSW) and the State Bank of Pakistan (SBP).
Over the five-year period from July 2020 to June 2025, PSW recorded US$ 321 billion worth of imports, whereas SBP cleared approximately US$ 291 billion imports through banking channels, revealing a discrepancy of US$ 30 billion. The largest gap was recorded in FY 2021–22, where PSW data reflected US$ 82.3 billion in imports whereas SBP showed only US$ 71.5 billion, a difference of US$ 10.8 billion. SBP has defended the integrity of its data, emphasizing that its figures are derived from verifiable financial transactions rather than administrative trade records. It has also clarified that any revisions by the Pakistan Bureau of Statistics will not materially alter the published current account figures.
The discrepancy, however, has raised important questions about methodological consistency and institutional coordination. The divergence between administrative and financial data highlights structural issues in Pakistan’s economic governance, including weak inter-agency coordination, outdated statistical systems, and limited autonomy of data institutions.
IMF’s emphasis on institutional credibility and transparent data frameworks becomes particularly relevant in this context. The credibility of national statistics is not merely a technical matter, but it directly influences sovereign risk perception, foreign investor confidence, and access to multilateral financing. Continued doubts over accuracy of trade and fiscal data can deter foreign investors and complicate policy formulation, especially in a global environment where credibility is often as valuable as growth itself.
IMF’s global message resonates strongly with Pakistan’s domestic reality. The Fund’s warning about erosion of institutional independence and policy transparency as threats to emerging market resilience could easily be read as an indirect caution for Pakistan. The country’s economic revival strategy depends on sustained confidence from both domestic and international investors, which in turn relies on consistent data reporting and credible policymaking.
IMF’s call for credible, transparent, and sustainable policies mirrors what Pakistan requires most: policy predictability, institutional integrity, and macroeconomic stability anchored in realism rather than optimism.
The broader economic environment of Pakistan is one of careful transition. The government’s claim of recovery is supported by macro-level stability indicators, yet primary weaknesses still exist. IMF’s projections, though modest, still suggest the possibility of gradual improvement if current fiscal and monetary frameworks remain intact.
Narrowing of fiscal deficit, moderation in inflation, and reduction in unemployment reflect a partial recovery from the instability of previous years. The external sector balance, though fragile, indicates that Pakistan has achieved temporary breathing space. However, the risk of complacency remains high.
Past two decades’ experience demonstrates that macroeconomic stability without structural reform is unsustainable. The economy’s reliance on remittances, import compression, and ad hoc fiscal adjustments must evolve into a growth model, driven by productivity, exports, and competitiveness.
The current global economic context, as highlighted by IMF, is both a challenge and an opportunity for Pakistan. Slowdown in global trade and investment flows calls for strategic repositioning of Pakistan’s export and industrial policies.
The Fund’s recommendations on embracing structural reforms, preserving monetary independence, and strengthening governance provide a clear roadmap. Pakistan economy’s future will depend on its ability to align domestic reforms with global realities building transparency, credibility, and resilience in a world where uncertainty is the new constant.
The moment thus calls for Pakistan’s policymakers to move beyond short-term stability measures and towards real structural reforms. Restoration of data credibility, institutional autonomy, and investor trust must become the foundation of future policy.
IMF’s reminder that “credible, predictable, and sustainable policies restore confidence” could not be more pertinent. The real test for Pakistan lies not in achieving a temporary surplus or managing a single-year growth bounce but in embedding transparency, discipline, and foresight into the core of its economic governance. The opportunity to spin toward sustainable growth exists, but only if Pakistan goes for reforms that align its national ambitions with the new global economic reality.
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Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima & Ikram, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer. They have coauthored a book, Pakistan Tackling FATF: Challenges and Solutions