The International Monetary Fund (IMF) has cautioned that the recent reciprocal tariffs imposed by US President Donald Trump are expected to weigh on Pakistan’s exports and economic growth.
The Fund in its latest report “First review under the Extended Fund Facility (EFF) arrangement, requests for modification of performance criteria, and request for an arrangement under the Resilience and Sustainanble Facility (RSF)” noted that though there is considerable uncertainty about the final impact on the economy, the tariffs and subsequent financial market reaction are expected to weigh on Pakistan’s exports and GDP, “with growth revised down marginally in FY25 and around 0.3ppts in FY26”.
On April 2, 2025, the US announced a large increase in country-specific tariffs, including a 29% tariff on Pakistan.
“While Pakistan’s export sector is relatively small, i.e. 10% of GDP, the US is Pakistan’s largest trading partner, with the export of textiles and apparel the largest segment of that trade.
“Although some tariffs may be changed after negotiations, many of Pakistan’s competitors in these product segments also face large tariffs at this moment, including Bangladesh (37%), China (145%), India (26%) and Vietnam (46%),” it said.
The IMF also highlighted broader indirect effects, stating: “In addition to the direct impact on Pakistan’s exports to the US, Pakistan is expected to face indirect effects including via the impact of the tariffs on the economies of Pakistan’s other trading partners, tighter global financial conditions, potentially lower remittances, and increased trade policy uncertainty.”
The Washington-based lender said that the net impact on Pakistan’s balance of payments is projected to be moderated by the recent commodity price declines and the downgrade in activity, which will reduce Pakistan’s import bill.
ÏMF noted that Pakistan’s sovereign spreads have increased sharply since April 2, but market access to external financing in the near term is already limited, vitiating any near-term impact.
“Nonetheless, if outflow pressures intensify, it will be critical that the exchange rate is allowed to adjust.”
Moreover, the net impact on inflation is also projected to be modest, with some downward pressure expected from lower commodity prices and weaker growth, the report added.