After years of high inflation debt and trade deficits, Pakistan’s economy is on the road to recovery. This positive trajectory is fueled by improved macroeconomic management, inflation control measures and enhanced fiscal and external accounts stability of their government.

Last year, Pakistan faced severe fiscal and monetary pressures, with inflation surging to 38%, poorer household income and eroding purchasing power. Foreign exchange reserves fell to just two weeks’ worth of imports, while industrial output dropped by 10.3%, and gross domestic product (GDP) growth slowed to 0.2%. The combined effects of COVID-19 and over $30 billion in flood damages contributed.

As a result, Pakistan implemented a series of reforms, including tightening fiscal policies and curbing inflation. Their economic transformation plan, Uraan Pakistan, aims for sustainable, export-led 6% GDP growth by 2028. But securing sufficient external financing remains difficult for Pakistan, given the large maturities and the existing exposure of lenders.

Pakistan has over $22 billion in public external debt, due to mature in FY25, including nearly $13 billion in bilateral deposits, according to FitchRatings. “The authorities budgeted for about $6 billion of funding from multilaterals, including the International Monetary Fund (IMF), in FY25, but about $4 billion of this will effectively refinance existing debt,” the report reads. “The group’s current project portfolio is about $17 billion, and its net new yearly lending to Pakistan averaged around $1 billion over the past five years.”

In July 2024, IMF personnel and the Pakistani authorities reached a staff-level agreement on a 37-month Extended Fund Facility Arrangement (EFF) of about $7 billion. In addition, Pakistan collaborated with the World Bank on a $20 billion initiative targeting health, education, poverty alleviation, investment and climate resilience.

According to the World Economic Forum (WEF), in July 2024, the WEF introduced a reform-oriented budget to raise Rs13 trillion in revenue—a 40% increase from the previous year. “These reforms focused on broadening the tax base by targeting under-taxed sectors like agriculture, real estate and trade, while leveraging technology to enhance compliance and transparency,” the report reads. “Modernizing the Federal Board of Revenue (FBR) has been instrumental in streamlining tax administration.”

Pakistan’s economic activity is expected to continue recovering. In January, Pakistan’s inflation dropped to 4.1% and its annual inflation rate slowed for a fourth straight month to 1.5% in February, “the lowest level since September 2015,” per Trading Economics.

Pakistan’s real GDP growth reached 2.8% in FY25, the World Bank Group reports. “As the economy benefits from the availability of imported inputs, easing domestic supply chain disruptions and lower inflation,” the report reads.

By the numbers: Customers in Pakistan have averaged 45 days beyond terms, with 50% saying payment delays have increased or stayed the same, according to the FCIB Credit and Collections Survey.

The most common cause for payment delays is unwillingness to pay, cultural norms or customs and billing disputes (all at 50%).

What Survey respondents are saying:

• “The Know Your Customer (KYC) process is very important in Pakistan. Best practice is to thoroughly vet the ultimate business owner (UBO).”
• “Obtain updated credit information. Look for owner and addresses verification, as changes are often not communicated by the customer. Pull a credit report for payment history and legal status and name verification.”
• “Follow up with the customer’s procurement and finance departments as many times as necessary.”

The bottom line: Pakistan’s economy is recovering, driven by fiscal reforms, inflation control and support from the IMF and World Bank. While inflation is dropping and GDP growth is expected to reach 2.8% in FY25, challenges like large debt maturities and payment delays remain.