Pakistan’s economy may face a contraction of 0.3% in the second half of fiscal year 2025 due to the implementation of new taxes totalling Rs 900 billion, according to projections based on tax multipliers for emerging and low-income countries.
As reported by Bloomberg, these multipliers typically range between 0 and 0.4 over four quarters, indicating that the country’s output could decrease by as much as Rs360 billion over this period.
The report also highlights that the suspension of the International Monetary Fund (IMF) program, which would halt crucial dollar inflows from friendly nations, could further exacerbate the slowdown. This concern stems from a previous episode in the second half of fiscal 2023, when delays in IMF loan disbursements led to heightened default risks, a 20% depreciation of the rupee, and a 15% surge in consumer prices. Real GDP contracted by 0.8% during this period.
Pakistan continues to rely on IMF loans and external credit sources to maintain fiscal stability. The IMF estimates the country’s external financial needs, including the current account deficit and debt repayments, at around $22 billion annually through fiscal 2028. Currently, Pakistan’s foreign exchange reserves stand at approximately $11.7 billion.
Despite these challenges, Bloomberg forecasts a nominal GDP growth of 10% for Pakistan in the current fiscal year, which is expected to result in an 11% increase in revenues. However, the new tax measures introduced in the fiscal 2025 budget, which amount to approximately 1.5% of GDP, are expected to raise Rs12 trillion in tax collections this fiscal year, falling short by around Rs867 billion from the IMF’s target.
