ISLAMABAD: An independent think tank, Tola Associates, has advised Pakistan to find a middle path between home-grown economic policies and the International Monetary Fund’s (IMF) agenda. The warning comes amid a major tariff policy shift, where foreign consultants advocate for a full opening of the economy, but economic ministries are concerned about its impact on businesses and jobs.
The report highlights that Pakistan’s economy is divided between IMF-driven monetary tightening and import-led growth policies, which have raised inflation and hindered growth, and the need for locally tailored solutions. It recommends keeping interest rates close to inflation, stabilizing the currency at its real value, and supporting industrial growth to reduce fiscal deficits.
The government plans to reduce import tariffs by nearly 50% over five years, which will initially cut revenue by Rs200 billion. However, the IMF opposes expanding relief measures for the salaried class, which would cost less than half that amount and is concerned about employment risks tied to tariff liberalization.
Tola Associates stresses the importance of targeted policies to support industrial sectors such as textiles, leather, and engineering. These include lowering borrowing costs for industries, cutting electricity tariffs, revising export financing, and adopting balanced tariffs on raw materials. While past import substitution efforts have had limited success, the think tank suggests shifting toward export-driven policies.
Boosting crop production efficiency is another key recommendation. Improving cotton yields and rice exports, and cutting input costs to return to wheat surplus status, could increase exports by $2.2 billion. The report projects that if Pakistan keeps its current account deficit within the government’s FY25 target of 0.4% of GDP, the rupee could stabilize around Rs272–282 per US dollar.
Market pressures, however, continue, with importers and major companies like PSO and PARCO facing costly dollar liquidity. The report estimates that improving crop yields could help achieve a current account surplus of 0.1% of GDP next year, potentially appreciating the rupee by Rs23 and lowering inflation by 4.6%. This would create room for interest rate cuts, reducing debt servicing costs and expanding fiscal space.
Finally, the report emphasizes that lowering policy rates to single digits by aligning them with inflation could save Pakistan up to Rs2.4 trillion in interest payments, greatly aiding economic recovery.