ISLAMABAD: The International Monetary Fund (IMF) has warned that recent changes in US import tariff adjustments could disproportionately affect Jordan and Pakistan, given their significant shares of exports to the US market.
In its Regional Economic Outlook, the IMF revised Pakistan’s GDP growth projection downward to 2.6 percent for the current fiscal year, from an earlier estimate of 3.2 percent. For the next fiscal year, GDP growth is projected at 3.6 percent.
Jihad Azour, Director of the IMF’s Middle East and Central Asia Department, noted during a press briefing that Pakistan has made significant progress in restoring macroeconomic stability over the past 18 months. Key indicators, including growth and inflation, have improved, with inflation dropping from 12.6 percent in FY2024 to 6.5 percent this year—a level expected to hold steady into next year. Debt levels are also stabilizing, and Pakistan has recently seen upgrades from rating agencies.
“Trade tensions may affect Pakistan more than the regional average,” Azour acknowledged. “However, the impact on Pakistan directly can be offset by other measures that would allow the Pakistani economy to reposition itself in a world that is in the midst of one of the largest transformation in terms of trade, economic opportunities, and to reposition itself in order to address any risks, but also to potentially benefit from change in the trade routes,” he added.
The Regional Economic Outlook highlighted recent US trade policy changes, which have led to adjustments in import tariffs. In the Middle East, North Africa (MENA), and the Caucasus and Central Asia (CCA) regions, April 2 tariffs were set between 20 and 40 percent for countries like Algeria, Iraq, Jordan, Kazakhstan, Libya, Pakistan, Syria, and Tunisia, while others faced the baseline 10 percent rate. Oil exporters benefited from an energy exemption, reducing their effective tariff burden.
Consequently, while US tariff impacts may be sizable for some countries, the overall effect on total exports remains contained. However, Pakistan and Jordan could face larger repercussions due to their higher export reliance on the US market.
Pakistan’s growth for FY2025 is expected to remain steady, though the IMF’s October forecast was revised downward by 0.6 percentage points due to weaker first-half activity and heightened trade uncertainty, offsetting the anticipated benefits of monetary easing later in the year.
Inflation is projected to ease further in 2025 and beyond, aligning with global trends. This decline is attributed to favourable base effects (Egypt, Pakistan), reduced commodity price pressures (Morocco), and the lagged impact of tighter monetary policy (Egypt).
Fiscal consolidation is expected to continue gradually as countries work to reduce public debt. However, for many MENA emerging markets and middle-income economies (EM&MIs)—including Pakistan—borrowing costs are likely to remain elevated, with effective interest rates staying above pre-pandemic averages.
While sovereign spreads on external debt have tightened across EM&MIs, they have widened for highly indebted economies amid global trade uncertainty. Countries like Egypt, Jordan, Pakistan, and Tunisia may need to refinance maturing debt at higher yields. Total gross public financing needs for MENA, EM&MIs and Pakistan are projected to rise to $263 billion in 2025 (from $249 billion in 2024) and reach $303 billion by 2029 — $38 billion above October’s estimates. This escalation heightens debt sustainability risks, leaving these economies vulnerable to shifts in investor sentiment and global uncertainty.
With interest rates expected to stay high, heavily indebted nations—particularly Egypt, Jordan, Pakistan, and Tunisia—must accelerate fiscal consolidation by curbing subsidy spending, boosting revenue, and eliminating tax exemptions. Policymakers must also mitigate risks from state-owned enterprises (Egypt, Pakistan) and public-private partnerships (Morocco).
